Trade Liberalization and Intergenerational Occupational Mobility in Urban India

Abstract

In this paper, we make two novel contributions to the literature on trade and inequality. First, we show that the same mechanism that causes greater cross-sectional inequality, higher relative demand for skill, also facilitates intergenerational occupational mobility. In particular, we develop a stylized model that shows that the innovation induced by international trade causes an increase in the employment share of high-skill occupations. In turn, this allows an increasing number of sons to enter better occupations than their father. We then exploit spatial variation in exposure to trade liberalization in urban India to test our model's prediction. Our empirical results confirm that sons that live in urban districts with a greater exposure to trade liberalization have a higher probability of being in a better occupation than their father. Further, as predicted by our model, we find that this positive impact of trade liberalization on intergenerational mobility is stronger in relatively technologically advanced districts. In a second contribution, we show that increased investment in education alone need not facilitate intergenerational occupational mobility. Instead, it only does so in urban districts where there has been a sufficient increase in the employment share of high-skill occupations.

Economic Approach to Intergenerational Mobility

“…They find that school construction lowered the IGRC for education of sons but had no appreciable effect for daughters. Using the 1991 liberalization in India as a quasi-experiment, Ahsan and Chatterjee (2017) estimate the effects of trade liberalization on occupational persistence in urban India, and find that while trade liberalization increased cross-sectional inequality, it also promoted occupational mobility. Assaad and Saleh (2018) estimate the effects of increased supply of public primary schools in Jordan on the father-sons, mothersons, father-daughters, and mother-daughters schooling correlations.…”

Economic approach to intergenerational mobility: Measures, methods, and challenges in developing countries

“…They find that school construction lowered the IGRC for education of sons, but had no appreciable effect on that of daughters. Using the 1991 liberalization in India as a quasi-experiment, Ahsan and Chatterjee (2017) estimate the causal effects of trade liberalization on occupational persistence in urban India, and find that while the higher demand for skills following trade liberalization increases cross-sectional inequality, it also promoted occupational mobility. Zou (2018) estimates the effects of the one-child policy on intergenerational educational mobility in China, with a focus on the channel of fertility decline and increased demand for higher-quality children.…”

Beyond Poverty Escapes—Social Mobility in Developing Countries: A Review Article

“…Other issues: the disconnect between educational and occupational mobility Valuable clues are provided by Ahsan and Chatterjee (2017): sons living in urban districts with more intense trade liberalization exposure are more likely to be in a better occupation than their father: as above, educational investment alone is not enough to secure occupational progress: matched educational and occupational progress is only observed in urban districts with a trade liberalization induced increase in the employment share of high-skill occupations.…”