Agricultural imports, labor mobility, and welfare

Using household- and firm-level data, we show that reductions in soybean tariffs lowered agricultural labor input and output, and improved agricultural efficiency. The shock induced a large reallocation of low-skilled labor into manufacturing, expanding firms’ employment but reducing firm-level productivity, while intensifying competition in urban low-skilled labor markets. Our quantitative analysis implies a small aggregate welfare loss, with substantial heterogeneity across sectors, regions, and skill groups. Importantly, lowering migration costs can substantially mitigate this welfare loss, highlighting the need to coordinate trade liberalization with domestic labor-market reforms. Comparing forces behind structural transformation, we find that agricultural import liberalization (“push”) was an important driver for labor reallocation, whereas manufacturing export expansion (“pull”) was the sole source of welfare gains.