2019 Conference

Trade Policy Uncertainty, Employment Types, Consumption, Interaction Model

The reduction of trade policy uncertainty in China since its WTO accession has a great impact on its material prosperity, but its impact on household consumption has not been studied yet. This study uses an interaction model and data from the 2013 Chinese Household Income Project (CHIP2013) to examine the relationship between the reduction of trade policy uncertainty and household consumption, and its heterogeneous association differentiated by two types of Chinese featured employments, the “inside-system employment” and “outside-system employment,” which have different levels of unemployment risks after the reduction of trade policy uncertainty. We find that overall, the reduction of trade policy uncertainty (increasing trade policy certainty) may increase consumption and decrease saving, but not significantly. However, when employment types are considered, the reduction of trade policy uncertainty would significantly promote consumption and reduce saving for households with the “inside-system employment,” while stimulate saving and deter consumption for households with the “outside-system employment”. The results raise concerns for the consumer wellbeing of workers employed in the “outside system” in China, to whom policymakers should assist them to obtain more unemployment insurance and reemployment services to reduce their unemployment risks and promote their consumption.