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Title: Short-Term and Long-Term Effects of Trade Liberalization
Citation Type: Working Paper
Publication Year: 2019
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Abstract: Free trade increases economic activity in the long run but produces significant labor market disruptions. I study the short-term and long-term effects of trade liberalization on workers by examining how young adults in the United States responded to the post-2000 U.S.-China trade boom. Because adjustment frictions increase with age, the long-term impacts of trade are determined by not only how but also where in the lifecycle workers respond to trade shocks. To document these adjustment mechanisms, I assemble several datasets and employ multiple identification strategies. The main empirical approach leverages the geographic variation in local exposure to China’s obtaining permanent normal trade relation (PNTR) status in 2000. Over-all, I find that young people’s short-term responses to trade liberalization were overwhelmingly negative. In particular, I find that PNTR essentially had no college attainment effects but infact raised the incidence of several undesirable outcomes. Those negative outcomes include lower geographic and industry mobility and increased engagement in criminal activities and risky health behaviors. I also show that PNTR significantly diminished young adults’ chances of long-term economic success. My findings imply that without government intervention, the disruptive effects of trade will likely remain high in the long run.
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Authors: Lin, Gary C
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Publication Number: 2019-11
Institution: Cornell University, Department of Applied Economics and Management
Pages: 1-70
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Data Collections: IPUMS USA
Topics: Labor Force and Occupational Structure
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