Exports to China and Local Employment in South Korea

Abstract We estimate the effect of exports to China on local employment in South Korea, exploiting variations in trade and employment across 220 South Korean municipalities between 2007 and 2017. To identify the effect of exports on employment, we use a novel instrument: China's exports to the US. This isolates the demand‐side factors for South Korean exports to China from the supply‐side factors that lead to biased estimations using ordinary least squares regressions. The results of a two‐stage least squares estimation using municipality‐level data confirm that increased exports to China contribute to a rise in employment in South Korean local labor markets. This effect occurs mostly in the service and construction industries rather than in the manufacturing sector.