Trade normalization, export quality, and in-migration of skilled workers: Evidence from China

Abstract The conferral of Permanent Normal Trade Relations by the United States eliminated policy uncertainty in US tariffs on Chinese exports and stimulated the exports of incumbent Chinese firms to the US market. We exploit the granting of the PNTR to examine the effect of the preference of export destinations for high-quality products on the skill utilization of firms and regional skill migration in China. Estimates show that local exports to rich markets result in substantially higher employment of skilled workers by firms and a larger inflow of skilled workers into the prefectures. We examine mechanisms and find a more substantial increase in education premium in regions with larger export expansions to rich markets from 2000 to 2005. We conclude with the importance of South-North trade in interpreting the skill upgrading of firms and interregional skill migration in developing countries. (JEL F14, F16, J24, J61, O15, O19).