Rethinking Trade and Human Capital Formation: A Joint Export and Import-Based Approach to China

Abstract

This paper studies the effect of international trade on schooling enrollment in China during a period of trade liberalization across low-skill and high-skill manufacturing industries. We develop a conceptual framework of schooling choice that incorporates the output effect of export and import expansion as well as the effects of capital-labor substitution and capital-skill complementarity through the importing of capital and intermediate inputs (CII). Using data on falling tariffs and prefectural level variables for the period 1990-2005, we jointly estimate the effects of export and import channels on educational choice at the high school and college level in China. We find that export expansion in high-skill (low-skill) industries increases (decreases) high school and college enrollment. Similarly, the expansion of imported CII in low skill industries reduces high school enrollment, whereas the expansion of imported CII has an ambiguous effect on college enrollment. This paper also finds trade shocks have heterogeneous effects on schooling across gender and urban-rural regions, where the effects of exports are greater on women and the effects of import channels are greater in rural areas, particularly on men for CII shocks.