Industrial development and trade policy uncertainty: Evidence from China’s WTO accession

Abstract

This paper studies how the elimination of trade policy uncertainty around WTO accession affects China’s manufacturing sector. We find a strong cross-sectional relationship between reduced uncertainty and input and output expansion by industry. The growth effect is particularly pronounced in the most labor-intensive industries in line with China’s comparative advantage, and more so in regions with lower shipping costs and a large manufacturing base. A decomposition reveals that the industry expansion can be traced to the extensive margin of new firm entry—consistent with firm-level evidence showing only a modest response among incumbent firms.