The effect of exports on labour share: A semiparametric approach using Chinese manufacturing panel data

We distinguish the effects of export on labour share into a stand‐alone direct effect and indirect effects, which alter the marginal impact of three key determinants of labour share found in the literature. While the direct effect of export has been extensively studied, the potential indirect effects remain unexplored. We investigate both effects of exports using micro‐level Chinese firm‐level data from 1998 to 2007. We employ a fixed‐effect varying coefficient model to reveal the potential nonlinearity of the effects of exports while alleviating the risk of model mis‐specification. Our model is estimated by a spline‐backfitted kernel estimator, which is more efficient and computationally attractive than alternative estimators. We find that while exports directly increase labour share as expected, it declines labour share indirectly through intensifying the negative marginal impact of firms’ capital intensity, monopoly power and capital‐augmented technological progress on labour share. As a result, the net effect of exports is not beneficial to labour's share of income and varies in magnitude across firm characteristics, regions and time periods.