Research and Cluster Colloquium - The Rise of China and Changing Global Production Structures: Comparing Germany and the US
Time
Tuesday, 8. June 2021
11:45 - 13:15
Location
online
Organizer
Chair of Political Economy
Speaker:
Christian Dustmann (University College London / CReAM)
The event is part of the Cluster Colloquium series and starts at 11:45
The Rise of China and Changing Global Production Structures: Comparing Germany and the US
(joint with Stan de Ruijter)
Abstract: This paper analyzes and contrasts the impact of greater integration with "The East" (China plus former Eastern Bloc countries) on the US and Germany, taking an input-output approach and using a novel decomposition of the overall effect on output and the labor market into direct effects and indirect effects through induced changes 'upstream' from focal industries. We show that Germany and the US differed in both their initial industrial structure in terms of positioning along global production chains and in the evolution of those structures during the China shock. Analyses using only direct effects miss a significant portion (often over half) of the effects of changes in trade, and mis-specify the heterogeneous effects of trade. While aggregate output increased by over 6% in Germany from 2000 to 2014 due to increased integration with the East, it increased only marginally in the U.S. While for the US the direct effects of trade decrease production, particularly in the manufacturing sector, these are more than offset by 'upstream' effects. For Germany, both the direct and indirect effects induced increases in output, with manufacturing workers seeing significant relative gains, but relative losses in the US. Moreover, differences in labor demands by industry lead to heterogeneities in labor demands by types of worker, with lower skilled male manufacturing workers disproportionately negatively affected in the US, while similar workers actually saw gains, in both absolute and relative terms, in Germany. Service workers saw absolute gains in labor demand in both the US and in Germany. Distinguishing between domestic and international indirect effects, we show that these are substantial for both countries, particularly in manufacturing, while domestic indirect effects are especially important for service industries.