Who Benefits from the Decline of American Manufacturing? Evidence from 142,663 Foreign and Domestic Entries in China

Abstract

We study the effects of globalization on entrepreneurial activities in China, using a favorable change in U.S. trade policy as a plausibly exogenous shock. We find that domestic entrepreneurs in exposed industries benefit more from the shock in financially-developed areas and areas dominated by large businesses. In undeveloped areas, however, the shock generates new local suppliers in upstream industries. Large and foreign entrants are more responsive to the shock than small local entrepreneurs, especially in undeveloped areas. Our results suggest that how globalization affects entrepreneurs in emerging markets depends on local conditions and production network structure.