When Opportunity Knocks: China's Open Door Policy and Declining Educational Attainment

Abstract

At the end of 1978, China opened the door to trade with foreign businesses. This study investigates how the Open Door Policy's implementation affected the skill composition and skill premium for workers born 1960-1970. Using measures of local labor markets' export exposure, we find that for every $1000 increase in exports per worker, high school completion rates decreased by 4.5 p.p. for workers born in 1970, compared to those born in 1960. Linking this to mid-career outcomes in 2010, we show that highly export-exposed workers in China have a$124 greater return to an additional year of schooling than their less export-exposed brethren. This suggests China's growth was likely dampened and its income inequality widened during the early industrialization of the 1980s and 1990s, as the Open Door Policy simultaneously reduced the availability of skilled labor and increased the skill premium