Trade and Employment From Myths to Facts - International Labour ...

Trade and Employment: From Myths to Facts
Figure 3.6: Fixed effects regressions
106
Fixed effect
Employment
20
15
10
5
-5
Import penetration
y = -3.0519x + 11.982
R = 0.05689
y = -6.9672x + 5.1393
= 0.40042
R
0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6
0
0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6
Import penetration
y = 4.3609x + 1.7858
R = 0.2013
The coefficients on import penetration may nonetheless be incorrect if the unobserved
factors held constant by way of splitting the data set are not, in fact, constant
over time. If not, then there is omitted variable bias. What if, for example, employment
were falling in all sectors over time as resources were reallocated from industry to
services, a trend that seems to take place in most economies as they mature? The
tendency for industrial employment to fall on its own would then “pile on” to the
effect of trade liberalization, increasing the apparent effect of the latter. The improper
attribution of time effects onto the import coefficient causes bias in the latter that
will disappear even in large sample sizes. It is a fundamental defect of the experimental
design.
Appendix table 3.A-1 shows data for Argentinean employment for 22 industrial
sectors for the years 1994, 1996 and 1998. There are also data for imports as a percentage
of valued added in those sectors for selected years from 1993 to 1998.
Running a simple regression of employment on import penetration (IP) yields the