This paper documents how the U.S. military presence in Thailand during the Vietnam War led to the subsequent development of the Thai sex industry. We show that the sex industry is currently concentrated in districts near former U.S. bases and provide causal estimates by comparing the surroundings of Thai military bases used by the U.S. army (treated group) to districts close to unused Thai bases or airfields (control groups). We exploit the distance to active enemy bases in Vietnam as an exogenous factor determining the use of only some Thai bases by the U.S. Army. Our estimates suggest that there are currently between 5 to 9 times more commercial sex workers in treated districts relatively to control  districts. Surprisingly, the sex industry became even more concentrated around these red-light districts over the past decades in spite of the departure of U.S.  servicemen in 1975 and poor locational fundamentals. We propose a simple  theoretical rationale based on search friction and information asymmetry in which  the U.S. military presence affected sex market through service differentiation and reputation building from sellers. We then provide evidence that, in treated districts, sex establishments differentiated horizontally and vertically their services thereby attracting foreigners otherwise held up by information asymmetry.

