Trade liberalization and mental health: Evidence from China

Mental health conditions pose serious challenges to children’s ability to learn and regulate their emotions, directly impacting their human capital development, with depressive disorders being among the most common. We leverage a change in international trade policy to examine how early childhood economic shocks influence adolescent mental health, with a specific focus on the prevalence of depression among teenagers in China. The United States granted China permanent normal trade relations (PNTR) in 2002, which substantially increased access of Chinese producers to U.S. market. Exploiting variation in tariff uncertainty faced by Chinese regions pre-2002, we find that the affected regions experienced a relative increase in average income per worker and structural transformation after the policy change. Children born in more exposed regions experience a significant relative improvement in their mental health outcomes during adolescence. We elucidate several potential mechanisms, including parental income, early childhood investments, and at-home care provision. We further show that parental psychological status, selective migration, parental absence, or fertility decline are unlikely to account for the changes we document. Our findings highlight the importance of potential mental health improvements stemming from early exposure to trade reforms that expand access to global markets.