# 1. Introduction

At the center of the debate about the net welfare effects of globalization is the question of whether these trade “shocks” remain localized or if they spread throughout the economy. In developed countries, the localized adverse effects of imports from developing countries (for example, Autor et al., 2013 and Hakobyan and McLaren, 2016) mirrored similar studies of the localized effects of imports in developing countries (for example, Topalova, 2010 and Edmonds et al., 2010). In particular, Dix-Carneiro and Kovak (2017) find that the localized effects of tariff reductions in Brazil grow over time because of imperfect inter-regional labor mobility driven by slow capital adjustment and agglomeration economies. In general, these papers find little support for the longrun labor market outcomes predicted by neoclassical trade models (Blanchard and Katz, 1992 and Bound and Holzer, 2000) because national labor market integration is inhibited by significant labor-market adjustment costs (Artuc, Chaudhuri, and McLaren, 2010).<sup>1</sup> Although much of this literature focuses on the adverse effects of imports, globalization has been associated with falling poverty, falling inequality, and rising growth throughout the developing world since 2000, reflecting earlier studies demonstrating a positive cross-country relationship between trade and growth (Frankel and Romer 2000). In particular, the dramatic rise in exports from developing countries noted by Hanson (2012) coincided with a dramatic increase in labor demand (Robertson et al., 2009; Lopez-Acevedo et al., 2016) that has been associated with falling poverty (Harrison, 2007).

Part of the reason for the apparent disconnect is that, in developing countries, exports rather than imports are both the most salient dimension of globalization and the least studied. One important exception, McCaig and Pavcnik (2018), shows significant reallocation of labor following a positive export shock in Vietnam. This study suggests that it is possible that export shocks may be disseminated through national labor markets in ways consistent with neoclassical theory.<sup>2</sup> This study compares the empirical approaches from recent studies of local labor market effects of imports with estimates of general-equilibrium predictions of neoclassical models using repeated cross-section worker-level data from Bangladesh. Bangladesh provides an excellent opportunity to evaluate the national labor-market dissemination of exports shocks for four reasons. First, since the 2013 Rana Plaza collapse, Bangladesh has been at the center of the debate about developing country exports.<sup>3</sup> Second, between 1980 and 2000 Bangladesh experienced a fundamental reorientation of its economic paradigm and production toward an open economy. When the MultiFibre Arrangement (MFA) ended December 31, 2004, demand for Bangladesh’s apparel exports increased dramatically. Although these changes in policy were arguably exogenous to local labor market outcomes, we use an instrumental variable technique to isolate the increase in exports due to changes in world demand to address concerns about endogeneity of the export shock.

Third, Bangladesh’s export growth was highly concentrated within the “ready-made” garments (RMG) sector. South Asia’s export portfolio is less diversified than other developing-country

> 1 Artuc, Chaudhuri, and McLaren (2010) developed a model to estimate worker-level adjustment costs. The seminal work of Artuc et al. (2010) brought labor-market adjustment costs to the center of a new wave of trade models because they show that adjustment costs critically affect welfare implications and that, in some cases, high adjustment costs may overwhelm the positive benefits of trade liberalization.

> 2 Goutam et al. (2017) carry out a similar exercise for Bangladesh.

> 3 See Elliott and Freeman (2003) describing early concern about sweatshops in developing countries.

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