Essays on the Economy of China

The economy of China has shown an exceptional progress over the last few decades. Understand- ing the problems that can arise despite China’s fast development is vital for further improvement of its economic conditions. This is the central theme of the three chapters of my thesis.

In the first chapter, I look at the impact of China’s World Trade Organisation (WTO) accession on income inequality. Taking China’s WTO accession as an exogenous shock to trade, I study the impact of trade liberalisation on income inequality using a shift-share Bartik Instrument. I find that the regions that were more exposed to the trade shock experienced a decline in income inequality. In terms of real income growth, median earners benefit the most from China’s entry to WTO, while the bottom decile shows no significant change.

In the second chapter, I conduct a nowcasting exercise on China’s GDP using a dynamic factor model. I start with the standard variables used in the nowcasting literature and then extend the analysis using a proprietary dataset that contains price and demand information for different commodities. The results show that the forecasting power of commodity data varies over different development phases with largest contribution during China’s industrialisation period (2003- 2015).
In the last chapter, I study how tightening of environmental measures might affect local labour market in China. Specifically, I look at the closure of aluminium plants in Henan province. Using the difference-in-difference analysis based on two different methods – two-way fixed effects and a matching method - I find no significant effect of plant closures on unemployment. I consider different explanations for this result and find evidence supporting migration channels for the local labour market adjustment.