Trade Adjustment Costs in Developing Countries: - World Bank ...

104Marc-Andreas Muendlerframework, as well as to modern trade theories with heterogeneous firms in theabsence of endogenous productivity change.Menezes-Filho and Muendler (2007) combine the linked employer–employee datawith data from a Brazilian manufacturing survey to show that labor productivityincreases faster than production in comparative advantage industries and atexporters. They conclude that the most plausible explanation seems to be that tradetriggers faster productivity growth at exporters and in comparative-advantageindustries, because for surviving firms in these industries larger market potentialoffers stronger incentives to improve efficiency. If productivity increases faster thanproduction, then output shifts to more productive firms but labor does not. Thislabor market evidence for Brazil is also suggestive of a novel explanation why procompetitivereforms might be associated with strong efficiency gains at theemployer level but not in the aggregate, where idle resources can result.The empirical literature on trade and resource reallocation has taken mainlythree approaches. First, industry-level studies use measures of job creation,destruction, and churning (excess turnover beyond net change), as well asinformality. Haltiwanger et al. (2004) show for a panel of six Latin Americancountries, for instance, that tariff reductions are associated with heightenedwithin-sector churning and net employment reductions at the sector level. 2Beyond those studies, research with linked employer–employee data documentsthe direction of factor flows between types of employers, and identifies theincidence of idle resources in the process. In contrast to the United States, whereindustries with faster productivity growth exhibit higher net employment growth(Davis et al. 1996), more productive employers reduced employment in Brazilduring the 1990s. Using sector data, Goldberg and Pavcnik (2003) report nostatistically significant relation between informal work and trade in Brazil,whereas household survey data suggest that tariff reductions are related to moretransitions out of formal work, especially into self-employment and withdrawalsfrom the labor force (Menezes-Filho and Muendler 2007). In the present chapterthe focus is on the formal sector, however.Second, employer-level studies show that trade reforms are associated withproduct-market reallocation towards more efficient producers (Tybout 2003). Butemployer-level studies typically report no detectable relationship between tradeand employment. 3 The evidence from Brazil discussed in this chapyer indicatesthat trade variables are not statistically significant predictors of employmentchanges at the employer level either (Muendler 2008). But worker-level2 Using measures of net employment change, Wacziarg and Wallack (2004) detect no statisticallysignificant labor reallocation in a cross-country cross-sector study of trade-liberalization episodes.Other examples of industry-level studies include Davis et al. (1996) for the United States; Roberts(1996) for developing countries; and Ribeiro et al. (2004) for Brazil.3 Roberts (1996) reports no clear effect of time-varying trade exposure on employment changesat plants in Chile and Colombia when sector characteristics are taken into account. Using Chilean plantdata, Levinsohn (1999, 342) concludes that, ‘try as one might, it is difficult to find any differentialemployment response’ to trade liberalization. Neither do Davis et al. (1996) find a clear effect of tradeon gross job flows using US data. An exception is Biscourp and Kramarz (2007) who show that Frenchfirm-level trade data exhibit a significant association of job destruction with firm-level imports.