Work or Crook: The Socioeconomic Consequences of the Export Slowdown in China

We highlight a lesser-known consequence of the remarkable slowdown in global trade growth in recent years: the rise of criminal activities. Applying the textual analysis to millions of judgment documents at all levels of courts in China, we construct measures of crime rates that vary across cities and over the years. Estimations using a shift-share instrumental variable find higher crime rates in cities that experience a more severe export slowdown. The effects are more pronounced in regions that specialize in manufacturing, that have a larger share of the young and migrant population. Regarding types of crime, larger effects are found in resource appropriation activities such as robbery, stealing, defraudation, counterfeiting, and intellectual property infringement, as well as in criminal activities involving violence, felony traffic offenses, drugs, prostitution, and gambling. Negative export shocks also cause shrinking job opportunities, declining labor earnings, and rising labor disputes, suggesting that a weakened manufacturing labor market lowers the opportunity costs of committing a crime. Alternative mechanisms, such as spending on stability maintenance, appear to play less of a role. Our estimates indicate that if China's export had maintained an annual growth rate of 20% as high as in 2011, the crime rate would have decreased by 9.5% from the current level.