Research

This paper studies how the impact of a trade shock depends on a country's production structure and its position in the global supply chain. I decompose the effect of China's WTO accession on Indian manufacturing into two channels - direct output competition and higher intermediate input availability. The input channel dominates, in part driven by the fact that Indian manufacturers were predominantly buyers of Chinese intermediates rather than competitors in final-goods markets at the time of the shock. Using district-level data and a shift-share IV methodology, I find that a 1 standard deviation higher exposure to Chinese inputs per worker slows the decline of the manufacturing employment share by 0.62 percentage points. Disaggregating employment by sub-sectors, I show that the direct competition effect is concentrated in the intermediate goods sectors. To quantify aggregate welfare and employment effects, I construct a quantitative trade model with input-output linkages in production. The model implies moderate welfare gains, with higher gains in more industrial states reliant on China-shocked sectors for inputs.