Labor Market Impacts of Import Penetration from China and Regional Trade Agreement Partners: The Case of Japan

Abstract

Many studies have investigated the impact of imports, especially those from China, on the domestic labor market. In this paper, we empirically examine the effects of not only imports from China but also those from regional trade agreement (RTA) partners on employment in Japan. To this end, we decomposed the total import penetration into the import penetration under the most favored nation (MFN) and RTA regimes. To address the endogeneity concern on our import penetration variables, we estimated our models by the instrumental variable method. As in previous studies in the literature, we found that the rise in import penetration from China significantly decreases employment in Japan. In contrast, import penetration under the RTA regime is found to have significantly positive effects on employment. The increase in imports under RTA regimes is not harmful to the domestic labor market.