Chen Liu

Assistant Professor - Department of Economics

Working Papers

"China’s Export Surge and the New Margins of Trade", with Xiao Ma (Job Market Paper)

Although the literature has identified many factors that contributed to China’s post-1990 boom in manufacturing exports, there still lacks an accounting of the relative contribution of these factors. This paper builds a multi-region, multi-sector heterogeneous firm model to quantify how three fundamental policy reforms affected China’s exports over 1990 to 2005: changes in China’s import tariffs, changes in tariffs facing China’s exports in foreign countries, and changes in barriers of internal migration within China. The model allows firms to choose where to locate, whether to export, and the export mode (processing or ordinary), and features firm heterogeneity in productivity along each of these dimensions. Theoretically, we decompose the aggregate elasticity of trade with respect to trade costs into multiple margins of firm adjustment, and show that each margin has an analytic expression, thereby nesting the intensive and extensive margins in Chaney's (2008) influential application of Melitz (2003). Empirically, we combine multiple data sources to estimate the model parameters that determine each trade adjustment margin. We then quantify the role of each policy in determining China’s export surge and decompose the impact into the different margins of adjustment. We find the three policy combined explains 18.2% of China's export surge, with the reductions in China’s tariffs account for 8.0%, reductions in foreign tariffs account for 5.6%, and reductions in barriers to internal labor mobility in China account for 4.6%. The remainder is accounted for by reform-induced TFP growth. We also find firms' location switch are important source in explaining China's export surge: in the absence of firms’ relocation, the portion of China's export increase explained by three combined policy drops to 12.4%.

"Modes of Migration Entry, Location Dependence, and the Global Impact of a skill-based US Immigration Reform" supported by Alfred P Sloan Foundation's NBER Fellowship on High-Skill Immigration.

Conference Presentation: [FREIT Empirical Investigation in International Trade Conference 2017]

This paper develops a general equilibrium model of international migration to analyze the economic consequences of changes in immigration policy. The model incorporates endogenous mode choice of migration entry, and features with a rich correlation structure of workers' productivity across different nests of alternatives. My model allows the pattern of migration substitution differ by the location to where migrate can choose, referred as location dependence. Theoretically, I establish the key variables and model parameters that determine the impact of immigration policy changes. I also show my model can undertake a realistic policy experiment in the form of changes in the overall number of migration entries for each mode. Empirically, I combine multiple data sources to estimate these variables and parameters, and quantify the impacts on global migration and wages in many countries, had the U.S. shifted to a skill-based immigration system. I find the migration and wage impacts are small both for the US and for foreign countries. Due to migrants' entry mode substitution, US illegal immigration increases by 21%. I also find when the feature of location dependence is absent, the increase of US illegal immigration falls to 1/3 to 1/2 of the magnitude increase in my benchmark model, while the impact of US wages would have been doubled.


"The Rise and Fall of U.S. Low-Skilled Immigration" Brookings Papers on Economic Activity, 2017 (with Gordon Hanson and Craig McIntosh) Press Coverage: [VOX , The Washington Post , The Economist , The Wall Street Journal , The New Yorker, Bloomberg View], [NBER Version]

"High-Skilled Immigration and the Comparative Advantage of Foreign Born Workers across US Occupations" in High-Skilled Migration to the United States and its Economic Consequences, University of Chicago Press, 2017 (with Gordon Hanson)

Work in Progress

“Testing the Roy Comparative Advantage: The Determinants of US Immigration Occupation Sorting” (with Gordon Hanson)

Do labor market frictions shape workers’ allocation to jobs, or do comparative advantages play a role? The answers to these questions are crucial in understanding the misallocation of workers to jobs and its implications for the aggregate total factor of productivity. However, the literature lacks an empirical validation of both hypotheses. This paper provides supportive evidence of the Roy’s comparative advantage hypothesis based on immigrants' occupation sorting both in the US and Canada. We show that emigrants from countries with high scores in educational subjects (PISA math score, linguistic proximity) are more likely to work in occupations where these subjects are important in performing tasks. This positive association appears to be stronger among the sample of immigrants who had more years of exposure to education in their home countries than those who had less. We also find similar results for the case of Canadian immigrants.