Reports
Discussion Papers
No.1008 The ‘China Shock’ and middle-income economies: threats to industrialization and human capital formation
by Ian Coxhead, Anna Strutt, Erwin Corong, Varan Kitayaporn
March 2026
ABSTRACT
Aided by an unprecedented increase in tertiary-educated workers and industrial policies, China has become a major exporter of medium-high skill-intensity manufactures. Consequently, global prices of many such goods have fallen, creating potential cross-border spillovers. Using a general equilibrium model of world economy and trade, we simulate effects in other middle-income industrializers, with particular focus on labor market adjustments. We find that skill-intensive sectors contract in almost every country. Low-skill wages rise and skill premia decline. Spillovers from China’s expansion diminish prospects for industrial upgrading elsewhere, and in the longer run may impede accumulation of human capital for more knowledge-intensive growth.
Keywords: Comparative advantage, labor market, skill premium, China shock, CGE
JEL classification: F63, F16, O5, O11, J24
PDF available at https://hdl.handle.net/2344/0002001833
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