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

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Chapter 7: Trade diversification: Drivers and impacts established at the firm level. Thus, import liberalization can be taken as a positive shock on TFP, which should, according to the Melitz (2003) argument, raise the number of industries with an upper tail of firms capable of exporting — and thus raise overall export diversification. 15 Indeed, arguments running roughly along this line can be found in, for example, Bernard, Jensen and Schott (2006) or in Broda, Greenfield and Weinstein (2006). This section presents a brief statistical analysis of this relationship. To do so, we combine the Theil index of export concentration computed at the HS6 level by Cadot, Carrère and Strauss-Kahn (2011) for the period 1988–2006 with the trade liberalization date of Wacziarg and Welch (2008). The sample used includes 100 countries, 62 middle-income and 38 low-income countries over the period 1988–2006, with respectively 68 per cent and 49 per cent of country-year observations occurring in liberalized regimes (see technical appendix table 4.A.1). We exclude from the sample 34 high-income countries, as 95 per cent of the observations of this group occurs in liberalized regimes throughout the period (Estonia and Iceland are the only countries considered as non-liberalized and they do not change regime over the period – see technical appendix table 7.A.1). Wacziarg and Welch (2008) propose an update covering the late 1990s of Sachs and Warner (1995)’s trade liberalization dates. Such data were first collected from a comprehensive survey of broad country-specific case studies. More precisely, Sachs and Warner determined trade liberalization dates based on primary-source data on annual tariffs, non-tariff barriers and black market premium. A variety of secondary sources was also used, particularly to identify when export marketing boards were abolished and multi-party governance systems replaced Communist Party rule. 16 As shown in figure 7.5, the conditional mean of Theil’s concentration index is 4.8 in a liberalized regime versus 5.9 in a non-liberalized one, while the number of exported products is clearly higher when the trade regime is liberalized (1,893 products versus 1,178 in a non-liberalized trade regime). The difference in Theil indices means is higher for middle-income than for low-income countries, although it is still statistically significant for low-income countries. This suggests a stronger dynamic between trade liberalization and diversification of exports in developing countries with better infrastructure and higher skill levels. 15 This mechanism is further described in section 7.5.1. 16 Rodriguez and Rodrik (2000) criticized the Sachs-Warner (1995) openness variable, showing that its explanatory power on growth was driven by only two of its five components: the black market premium on foreign exchange (a measure of overvalued exchange rates rather than trade openness) and the presence of export marketing boards. By contrast, tariffs and non-tariff barriers correlated poorly with growth. As export marketing boards essentially characterized sub-Saharan Africa and overvalued exchange rate Latin America, the Sachs-Warner measure was indistinguishable from African and Latin American “dummy variables”. Wacziarg and Welch (2008) improved the methodology by better identifying export marketing boards and trade liberalization dates. Using their improved openness definition and panel data over a long period, they confirmed that openness correlates with faster growth, delivering on average 2 percentage points of additional growth (largely driven by additional investment). 269
Trade and Employment: From Myths to Facts Figure 7.5: Differential of means in liberalized versus non-liberalized regimes (100 middle- and low-income countries, 1988–2006) 6.5 6 5.5 5 4.5 4 3.5 3 270 7.5.a. Theil’s concentration index 7.5.b. Number of exported products Mean if No trade liberalization Mean if trade liberalization All Middle Income Low Income Note: For each group, the difference in means is tested to be significantly higher in non-liberalized than in liberalized regimes (at 1 per cent level for All and middle-income countries, and 5 per cent for low-income countries). 2500 2000 1500 1000 500 0 Mean if No trade liberalization Mean if trade liberalization All Middle Income Low Income Note: For each group, the difference in means is tested to be significantly lower in non-liberalized than in liberalized regimes (at 1 per cent level). We then run fixed-effects regressions of the Theil index on a binary liberalization indicator defined by the dates of liberalization (equal to 1 when liberalized) to assess the within-country effect of trade liberalization on the diversification of exports. We use a difference-in-difference specification similar to the one used by Wacziarg and Welch (2008): Theil it = λ i +δ t +φLIB it +e it where Theil it is the Theil index of country i exports in year t; LIB it a dummy equal to 1 if t is greater than the year of liberalization (defined by Wacziarg and Welch); and 0 otherwise. We introduce both country and year fixed-effects ( λ i and δ t , respectively). The sample is not restricted to countries that underwent reforms. The regression for the period 1988–2006 shows a highly significant withincountry difference in export diversification between a liberalized and a non-liberalized regime (φ reported in table 7.2, column 1), with a coefficient twice higher for middlethan for low-income countries, confirming the pattern observed in figure 7.5. We also regress equation (1) using the Theil index’s decomposition (within-groups versus between-groups, see section 7.2). Results are reported in table 7.2, columns 3-6. Controlling for country and year effects, the results suggest that middle-income countries that undertook trade liberalization reforms have a significantly more diversified structure of exports along the intensive margin. By contrast, low-income countries diversify mostly along the extensive margin. Thus, trade liberalization helps middle- (1)
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Trade and Employment From Myths to
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Trade and Employment From Myths to
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PREFACE Trade negotiations -bilater
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Trade and Employment: From Myths to
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EDITORS AND CONTRIBUTORS EDITORS Ma
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ACKNOWLEDGEMENTS The editors wish t
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NEW EVIDENCE ON TRADE AND EMPLOYMEN
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Chapter 2: New evidence on trade an
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Region Annualized percentage change
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Region 1980 1985 1990 1995 2000 200
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Figure 2.4.b: Long-run association
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20 See Harrison and Rodriguez-Clare
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ASSESSING THE IMPACT OF TRADE ON EM
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Chapter 3: Assessing the impact of
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p * Chapter 3: Assessing the impact
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APPPENDIX 3.A: TABLES Chapter 3: As
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TRADE AND THE INFORMAL ECONOMY 4.1
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Chapter 4: Trade and the informal e
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For more than two decades, quantita
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GENDER ASPECTS OF TRADE 5.1 INTRODU
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and income-earning opportunities ge
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Figure 5.1: Description of gender i
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Chapter 5: Gender aspects of trade
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A third view is that the type of jo
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REFERENCES Chapter 5: Gender aspect
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