Abstract:

This dissertation evaluates the impacts of trade liberalization on the poor in the developing world. In the first chapter, I introduce habit formation into an otherwise standard model of international trade. Household tastes evolve over time to favor foods consumed as a child. In autarky, households prefer foodstuffs that are locally abundant and thus relatively inexpensive. The opening of trade causes a rise in the price of these preferred goods. Neglecting the correlation between tastes and agro-climatic endowments systematically overstates the short-run nutritional gains from agricultural trade liberalization, as consumers are less willing to substitute into cheaper imports than they would be without habit formation. I examine the predictions of this model of trade with habit formation using household survey data from India, where internal agricultural trade remains highly restricted. I identify tastes with the unexplained regional variation in household demand for agricultural products and find that regional tastes favor food crops that are well-suited to local agro-climatic conditions. I predict that the liberalization of internal agriculture trade in India will generate short-run caloric losses unless income gains from trade are relatively large, and that there would be no such losses if tastes were identical across the country. I also examine the consumption patterns of inter-state migrants, and find that they consume fewer calories for a given level of food spending than otherwise similar consumers. This effect only disappears two generations after migration, as tastes adjust to local prices. These findings, which reflect the higher prices of preferred origin-state goods in the migrant's destination state, further corroborate the assumptions of my model.

The second and third chapters focus on the enormous growth of export manufacturing in Mexico. Studies based on firm-level data find that both exporting firms and multinational corporations pay higher wages, for a given skill level. However, the for Mexico over 1986-2000, the export sector pays higher wages than other sectors, but school drop-out increases with the arrival of new export jobs. The workers induced to enter export manufacturing eventually earn less than they would have earned had the jobs never appeared and they not dropped out of school. I causally identify these effects by looking within 2,443 municipalities and examining how education varies over cohorts, depending on how many new jobs arrive during a cohort's key school-leaving ages. Export manufacturing attracts impatient students by paying very high relative wages accompanied by low returns to a few more years of education, and offering plenty of jobs to low-skill workers straight out of school. The magnitudes I find suggest that for every ten new jobs created, one student drops out of school at grade 9 rather than continuing on through grade 12.

In the third chapter, I show that the women induced to work in export manufacturing by the opening of a new factory nearby have significantly taller children. This increased child height does not come through higher household income alone, with these women reporting stronger bargaining power within their households. Since women who choose to work in factories may be quite different from those who do not, I require an instrument that increases the probability of working in a factory but does not affect child height directly. Therefore, I instrument for whether a woman's first job was in export manufacturing with factory openings in her town at the legal employment age of 16. I use a LATE estimator to find that women induced to enter manufacturing by the opening of a factory have children who are over one standard deviation taller. This group of women, whose lives are altered by the factory, are exactly the group that concerns a local policymaker deciding industrial policy.