Who Benefits from the Decline of American Manufacturing? Evidence from 142,663 Foreign and Domestic Entries in China

Using the establishment of U.S.-China Permanent Normal Trade Relation as a plausibly exogenous shock, we study the effect of trade liberalization on domestic entrepreneurial entry and new foreign plants in an emerging market. The positive effect on entry rate is concentrated among foreign plants in developed localities. Foreign entrants’ export propensity is more responsive to trade shock. Domestic entrants’ export propensity is dependent on local financial development. Foreign entrants are less financially constrained and grow faster, especially in undeveloped areas. Our results suggest that in emerging markets, trade globalization may in the first instance benefit foreign investors rather than domestic firms and entrepreneurs