on employment growth, which is significant in a majority of our specifications. With regard to the BRIC

nations (Brazil, Russia, India, China), the relationship is insignificant when controlling for exports of raw

materials from those countries, indicating that the negative impact of Chinese intermediates is mitigated

by trade with other countries. Additionally, intermediate inputs from the new EU members (EU-12) 2 exert

a negative impact on employment growth, while the opposite is true for inputs from the European Union

in general (EU-27). Apparently, intermediates from the EU-12 substitute for manufacturing production in

the OECD countries, whereas imports from the old EU members acts as a complement, thereby increasing

domestic manufacturing employment growth.

The inclusion of several covariates leaves the main results unchanged confirming the stability of our model.

We therefore control for the current account balance, the share of high-skilled in 1996, the strictness of

employment protection legislation, and an interaction term, which combines total factor productivity (TFP)

and imported intermediate inputs. Additionally, the sample is split into two periods and 4-year averages to

discard cyclical influences. Re-estimating the baseline regressions yields insignificant results. Furthermore,

endogeneity might arise due to a correlation between imported intermediates and unobserved shocks in

product demand. Employing an instrumental variable strategy, we observe a positive and partly significant

relationship between manufacturing employment growth and different measures of import penetration which

is in line with the findings from the baseline regression. When accounting for the origin of the imported

intermediates, inputs from China and the EU-12 exert a negative influence on employment prospects in rich

economies which is significant in most of the specifications.

Methodologically, the unique dataset allows for the application of a three-level mixed model with random

intercepts at the country and the sector level, therefore incorporating the hierarchical structure of the data.

Incorporating this information is important, as observations from the same country and the same industry

are not independent from each other. To exclude the possibility that the findings are primarily driven by the

selected estimation strategy, we provide an extensive sensitivity analysis, including several alterations of the

baseline technique.

The paper is structured as follows.

Section 2 provides a short literature review and discusses some

theoretical aspects. Section 3 offers a description of the data and outlines the underlying empirical strategy.

Section 4 presents the main findings for various model specifications, different measures of import penetration

and alternate estimation strategies. The final section concludes.

2 EU-12 comprises the countries that gained accession to the European Union in 2004/07, including Bulgaria, Cyprus, Czech

Republic, Estonia, Hungary, Lithuania, Latvia, Malta, Poland, Romania, Slovakia, and Slovenia.


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