Chapter 8 in

Most studies of the opening of the Chinese economy focus at the national level. The few existing disaggregated analyses are limited to analyzing changes in agricultural production. In this paper we employ an innovative village equilibrium model which accounts for nonseparability of household production and consumption decisions. This allows us to analyze the impact of trade liberalization on household production, consumption and off-farm employment, the interactions among these three aspects of household decisions, as well as the interactions among households in a village economy. The village model is used to analyze the impact of price changes and labor demand, the two major pathways through which international trade affects households. Analyzing the impact of trade liberalization for one village in the Jiangxi province of China we find changes in relative prices and outside village employment to have opposite impacts on household decisions. At the household level the impact of price changes dominate the employment impacts. Comparing full trade liberalization and the more limited Doha scenario, reactions are more modest in the latter case for most households, but the response is non-linear to increasing depth of trade reforms