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The China Syndrome Revisited!
The lead editorial in the WSJ on 4/3/2017 argues that the well known Autor, Dorn and Hanson AER is wrong! This is fascinating on several levels. #appliedmicromatters! Permit me to explain.
At this moment President Xi and President Trump are having their first summit. President Trump has an economic model in his head. He notes an empirical fact; many of our manufacturing cities are suffering. He has a theory. Cheap Chinese imports have displaced our production and this has caused industrial cities in the U.S to suffer lower house prices, lower wages and higher unemployment. The Autor, Dorn and Hanson paper presents econometric evidence supporting President Trump's core model. You don't have to be a great political economy scholar to see that the President's men will embrace the ADH paper and say; ”here science shows we are right”.
The WSJ wants globalization to continue and it worries that President Trump will pivot and use the ADH evidence to literally build a wall around the U.S to reduce our global integration. The WSJ points to a new paper by a scholar I have never heard of named Jonathan Rothwell. Here is his new paper where he takes on ADH.
Here is a direct quote from his paper
“To address the second question, I revisit the findings of ADH. They conclude that Chinese imports cause local areas to experience lower aggregate employment growth; a rise in the unemployment rate; a drop in wages, income and labor force participation; and an increased reliance on Social Security and other government transfer payments. This article has been extremely influential among social scientists, judging from citation counts, and it has been widely cited in popular media.”
My quick read of the Rothwell paper is that he is correct. I like his scientific method. He first replicates the ADH results and then shows that their “headline findings” are generated by implicitly assuming that macro trends are the same across geographic areas (the commuting zones that ADH use as their unit of analysis). Intuitively, he is pointing out that ADH are attributing all of the macroeconomic trends experienced in the U.S to China. He is saying that different regions of the U.S were experiencing different macro trends and when one allows for this more flexible econometric specification that Chinese imports have a much smaller impact on U.S regions than was found by ADH with their more restrictive econometric specification.
This debate highlights the importance of how economic science works and how our findings influence politics. President Xi and President Trump should read Rothwell's paper and I'm eager to see the ADH response.
Source: http://greeneconomics.blogspot.com/2017/04/the-china-syndrome-revisited.html
