Parental Economic Shocks and Infant Health: The Effect of Import Competition in the U.S

Much of the literature providing causal evidence of parental economic conditions on infant health has focused on the impact of positive economic or income shocks, as opposed to negative ones. The concept of loss aversion makes it clear that individuals react differently when facing potential losses compared to potential gains, and that losses tend to be twice as psychologically powerful as gains. Moreover, long-term and persistent negative shocks such as those arising through increasing import competition could have different effects on health compared to reasonably temporary shocks such as lay-offs, recessions or business cycle fluctuations. This paper examines the effect of parental or household economic shocks on infant health by exploiting the increasing import competition from China between 1990 and 2000 on U.S. local labor markets as a plausibly exogenous source of variation in economic conditions. It also utilizes additional variation stemming from parental age within the local labor markets, thereby controlling for local labor market trends and allowing the analysis of heterogeneous impacts. Results indicate that commuting zones in the U.S. which experienced increased import penetration over time also experienced an increased incidence of low birthweight and a decrease in average birthweight. Further analyses show that the above results are driven by relatively younger parents as opposed to older parents.