the results. The exposure variables are measured in real U.S. dollars (normalized with the consumer price index). We drop all workers who are younger than 15 years old from the sample. When calculating the trade exposure index, we include all individuals who reported an industry for their main activity. The reported industries of individuals in the labor force survey are mapped to the ISIC 3.1 industry codes at the 4-digit level so that the trade data can be merged with the labor data. When calculating the average wage and informality probability, we restrict the sample to the individuals who reported weekly wages larger than 100 takas.

# Methodology

This paper combines both the local labor market approach characterized by Bartik (1991) with an approach designed to generate evidence that can be compared with the long-run general equilibrium predictions described earlier.

Short Run Local Labor Market Effects of Positive Export Shocks To estimate the relationship between exports and local labor market outcomes, we follow an unbiased econometric approach commonly employed in the literature to assess how exports affect workers in Bangladesh. Our starting point is that the impact of a trade shock should differ across regions, depending on the industry composition of each sub-district. For instance, let us imagine a trade shock especially prominent for a particular sector, regions where employment is more concentrated in that sector will be more affected. In this regard, differences in exposure of regions to this shock serves as an identification tool. A fundamental principle in this approach is existence of segmented labor markets. Identifiable labor mobility barriers or rigidities, such as commuting costs or lack of transport infrastructure, allows us to predict variations in local labor market outcomes and to estimate the effects of different exposure to trade.

We need to address potential endogeneity in trade exposure covariate. Since we observe changes in labor outcomes and exports simultaneously, we cannot identify which causes the other; an exogenous source of variation is required to determine direction of causality. Artuc et al. (2019) propose a strategy to estimate how an exogenous demand shock affects Indian and Sri Lankan labor markets. These authors ask how higher demand from the Organization for Economic Cooperation and Development (OECD) countries affects economic outcomes across districts in South Asian countries. They argue that local Indian and Sri Lankan market conditions are unlikely to affect OECD's total imports. In this paper, we follow a similar approach in that we use third countries’ import demand as an exogenous source of variation for our trade exposure indicator.

We follow a two-stage econometric strategy. In the first stage, we use the contribution of external import demand to explain Bangladesh's export growth. By doing so, we ensure that our measure of Bangladesh exports will not be affected by local economic conditions. In the second stage, we estimate how an increase in exports per worker in Bangladesh affects local labor market outcomes, such as average wages and informality rates.

Unlike other South Asian countries, Bangladesh has a highly concentrated export basket both in terms of merchandise (garments) and trading partners (the U.S. and EU). This characteristic makes overall OECD imports a less suitable proxy for external demand for Bangladeshi exports.

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