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

Trade Reform, Employment Allocation and Worker Flows 125or hiring plant J(i); x it is a vector of covariates that are worker, job or matchspecific; β z , β y , β x are coefficient vectors; α i is a worker-fixed effect and α i a yeareffect. There is an unobserved error to terminations and formations of employer–employee matches. For theoretical consistency with random shocks to employer–employee matches, the disturbance is assumed to be logistic and independentacross matches. This conditional logit model equation (3) is fit using conditionalmaximum likelihood estimation (the full maximum likelihood estimator isinconsistent). Identification of worker fixed effects requires restriction of thesample to workers who experience at least one separation or accession.Coefficients on worker and job covariates are identified from time variationwithin and across employers. Educational attainment changes little among primeagemales, however. Consequently, education categories are dropped from theworker characteristics vector but educational workforce composition shares arekept among the plant-level regressors. When inferring separations and accessionsin this and subsequent sections, transfers across plants within the same firm, aswell as retirements and reported deaths on the job are excluded.Table 7.8 presents conditional logit estimates of separations from formalmanufacturing jobs, where the conditioning removes worker-fixed effects(worker-FE logit) and year effects. For comparison, the first five columns presentregressions without sector fixed effects so that sector-specific variables such ascomparative advantage (which varies little over time) can be kept among theregressors. Separations are significantly more frequent in sectors with a strongercomparative advantage and at exporters—contrary to predictions of standardtrade theory. Elevated product tariffs predict lower separation rates from formaljobs (though only significant at the 10 per cent level), but high input tariff barriersare associated with significantly higher separation rates. Note that high inputtariffs reduce a plant’s effective protection from foreign competition (Corden1966; Anderson 1998) because high input prices exert competitive pressure.Similarly, additional import penetration predicts significantly higher displacementodds. When including observed market penetration with imports to proxy forchanging non-tariff barriers and all earlier trade related predictors, pointestimates and statistical significance of coefficients are hardly affected as thespecification is gradually enriched (moving from column 1 to column 6). FDIinflows into the sector predict a statistically significant reduction in displacementrates. The sectoral real exchange and the Herfindahl concentration index have nosignificant predictive power after conditioning on year effects.When year indicators are excluded from the regression (column 5), comparativeadvantage and exporting status become even stronger predictors ofdisplacements. Tariffs and import penetration coefficients now also reflect theeffect of reducing trade barriers over time and predict that reduced barriers bothat the input and the output margin, and the arrival of additional imports, areassociated with more worker separations. Using further controls—such as theinflation rate in addition to sectoral price levels behind the real exchange rate,FDI stocks in addition to FDI flows, and controls for privatization andoutsourcing—beyond the large set of sector- and firm-level variables that already