Seminar Summary — The Power of Exchange: Exposure to Trade Liberalization and Mental Health Outcomes in China

By Emanne Khan

Trade relations between China and the United States reached a major turning point in 1979 when the two countries signed a trade agreement that provided both with greater access to the other’s markets. Then-US Secretary of Commerce Juanita M. Kreps stated at the signing, “Today we take a major step together in resuming the unimpaired exchange of goods and services — and therefore the exchange of ideas, experiences and goodwill.”

The culmination of China’s efforts to liberalize its trade policy occurred in 2001 when it became an official member of the World Trade Organization. Two weeks later, then-US President George H. W. Bush signed a proclamation granting China permanent normal trade relations (PNTR) status with the US. Granting China PNTR status meant that the US Congress no longer needed to approve low tariff rates on Chinese imports on an annual basis, which reduced uncertainty around tariff rates for Chinese firms and allowed firms to steadily increase exports to US markets.

The change in US policy regarding trade with China may be considered an “economic shock,” a term that refers to an external event that has a major impact on a country’s economy. Prior research has documented the effects of economic shocks, such as the emergence of the COVID-19 pandemic on the mental health of affected populations. At a time in which 20 to 25 percent of Chinese adolescents report experiencing depressive symptoms, identifying factors that impact mental health at the population level is paramount to local and global health outcomes.

In a new study, Bilge Erten, Associate Professor of Economics and International Affairs at Northeastern University, and coauthors contribute to the evidence on economic shocks and mental health by assessing how trade liberalization affected mental health outcomes among adolescents in China. Erten presented the team’s findings at the final session of the Spring 2023 Human Capital Initiative Seminar Series on May 4, 2023.

Erten and coauthors focused their research on how trade liberalization circa 2002 reshaped local labor markets in China, thus inducing a change in early life circumstances for millions of Chinese youth. Erten and colleagues hypothesized that the shift in early life circumstances might be reflected in mental health outcomes among youth in China who were very young when PNTR was implemented.

The authors drew their data on mental health outcomes from the 2016 and 2018 China Family Panel Studies (CFPS), a nationally representative survey of Chinese families administered biennially by researchers at Peking University in Beijing. The CFPS includes measures of mental health, and respondents are asked to respond to the following eight statements with a number from 0 (“never”) to 3 (“all the time”):

(i) I felt depressed;

(ii) I felt that everything I did took considerable effort;

(iii) My sleep was restless;

(iv) I felt happy;

(v) I felt lonely;

(vi) I enjoyed life;

(vii) I felt sad; and

(viii) I could not get “going.”

 As the authors wanted to understand trade liberalization’s effects on adolescents, their final dataset comprised 14,521 individuals who were at or below the age of 20 when PNTR was introduced.

To link mental health outcomes to changes in early life circumstances, the authors simultaneously gathered data from eight waves of the University of North Carolina at Chapel Hill’s China Health and Nutrition Survey (CHNS) spanning 1993-2015. The CHNS provides information on early life investments in children such as the prevalence of prenatal care, breastfeeding and vaccinations.

The CHNS data allowed the authors to examine whether prefectures (districts) that were most affected by PNTR saw (a) increased early life investments post-PNTR and (b) different adolescent mental health outcomes than prefectures that were less affected. The authors noted the level of exposure prefectures had to PNTR by comparing economic activity such as exports and manufacturing pre- and post-PNTR.

The authors found that adolescents born in prefectures most affected by PNTR were not significantly more or less likely to display any symptoms of depression as measured by the CFPS. However, adolescents born in prefectures most affected by PNTR showed significant declines in their incidence of severe depression as compared to their peers in less affected prefectures. Specifically, a one standard deviation increase in an individuals’ exposure to PNTR is associated with a decline in their probability of experiencing severe depression by 4.7 percentage points. Furthermore, individuals who were born after the implementation of PNTR in 2002 (and thus experienced its effects the most) were least likely to experience severe depression.

Two mechanisms help explain the relationship between exposure to trade liberalization and rates of severe depression among Chinese adolescents. First, children born in prefectures that were more affected by PNTR were more likely to have parents with higher incomes and more resources. Second, children born in affected prefectures were more likely to enjoy a number of early life investments such as prenatal care, enhanced nutrition and education programs. These mechanisms enforce the authors’ hypothesis that PNTR induced improvements in quality of life that can be observed in the mental health outcomes of Chinese youth to this day.

The study highlights the power of early life exposure to trade reforms that enhance access to advanced country markets. As depression costs China over $6 billion each year in productivity losses, trade policies that improve households’ quality of life and earnings emerge as a cost-effective channel for combatting severe mental health symptoms through a positive economic shock.

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