Long-Term Impact of Trade Liberalization on Human Capital Formation
38 Pages Posted: 9 Nov 2018
Date Written: November 8, 2018
While a growing line of research has assessed the effect of trade liberalization on human capital formation, most of these existing studies focus on short term effect on individual's schooling attendance, and much less is known about it's long run effect, as well as the impact on other aspects of human capital formation, such as labor market and noncognitive outcomes. This paper studies the impact of trade liberalization on individuals' long-term human capital accumulation, including school attendance, cog- nitive abilities, labor market performance, and noncognitive outcomes. We use data for China from 1990 to 2010, a period during which the country became increasingly involved in global trade. By constructing prefecture-year-level tariff barriers, our iden- ti cation strategy exploits variations in different cohorts' exposure to a trade shock at age 16 for individuals within the same prefecture. Empirical results suggest that trade liberalization leads to decreased completed years of schooling, cognitive abilities, wage, and noncognitive outcomes. We provide suggestive evidence that this observed pattern is explained by the expansion of job opportunities in relatively low-skilled and labor-intensive sectors.
Keywords: Trade liberalization; Tariff reduction; Human capital; Long term effect
JEL Classification: F14, F16, J24
Suggested Citation: Suggested Citation