Long-term Effect of Export Expansion on Human Capital

Abstract

This paper illustrates how trade liberalization during an individual's early life can affect long-term health and cognitive outcomes 15 years later (i.e., in adolescence). China's accession to the World Trade Organization has brought significant economic benefits but has also given rise to some environmental concerns. Exploiting variations in each prefecture's exposure to trade shock and trade-induced pollution shock, this study constructed a shift-share instrument variable model. The trade shocks in early life improved health and cognitive outcomes significantly during adolescence while trade-induced pollution shock had the opposite effect, decreasing these two outcomes. These impacts were more pronounced among households with low economic status. Further investigation provided evidence for several underlying mechanisms, such as improved health and education resources and reduced SO₂ emissions by firms. This study provides useful insights into how to evaluate the long-term effects of trade liberalization on human capital in terms of economic benefits and environmental costs in China.