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

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Chapter 7: Trade diversification: Drivers and impacts 7.4.3 Diversification, spillovers and industrial policy The graphs in figure 7.4 highlight a clear statistical association between government supply-side policies, notably the provision of education and infrastructure, and export diversification. Government provision of infrastructure and education reflects the presence of market failures. As for education, the willingness of employers to provide it is limited, even for vocational training. 18 Reasons include the public-good character of education, the difficulty to retain trained workers, and the footloose nature of many employers in developing countries, which does not encourage social responsibility. As for road infrastructure, building costs are largely beyond what private-sector users are willing to invest given their public-good nature. Only mining companies are sometimes willing to invest in road infrastructure directly serving their needs, or large plantations in local networks of rural roads. Where governments are unable or unwilling to invest in road infrastructure, transportation costs choke commercial activities, both domestic and international, as Gollin and Rogerson (2010) document in the case of Uganda. 19 As a consequence, only a tiny proportion of crops make it to urban markets and even fewer to international markets, resulting in very concentrated export structures. Even where roads exist, sometimes transportation services are too expensive for the private sector to provide, in particular in low-density areas. A recent paper by Raballand et al. (2011) reports the results of a randomized experiment in rural Malawi aimed at understanding why rural transportation services are not provided even when rural roads exist. By randomly varying bus fares, they show that bus use is strongly price-sensitive but, most strikingly, that there is no price with positive demand at which costs are covered. 20 In the absence of a rural bus service, it is virtually impossible to transport goods (handicrafts, spices and other low-volume items) to the market, reducing the scope of marketable products and income-earning opportunities (in particular for women). Citing other studies that point in the same direction, Raballand et al. (2011) conclude that building roads – a favourite donor activity – does not 18 As an illustration, the World Bank’s Private Sector Competitiveness and Economic Diversification Project in Lesotho has aimed at building workforce skills through the establishment of two workertraining centres in Maseru and Maputsoe. The initiative had both public- and private-sector participation, the management councils in both centres being led by the private sector. But obtaining government funding for the centres has proved a challenge, since only three employers (from Lesotho, South Africa and Malaysia) have expressed interest in participating in their financing. 19 Gollin and Rogerson (2010) observe that the density of paved roads in Uganda today (16,300 km for a land area of 200,000 km2) is comparable to what the Romans left behind when they evacuated Britain in AD 350 (between 12,000 and 15,000 km of paved roads for a land area of 242,000 km 2 ). As a result, the prices of agricultural products when they reach markets are often more than double the farmgate prices. 20 Raballand et al. (2011) refrain from estimating a price elasticity of demand, but instead regress the probability that an individual took the bus over the investigation period (July-December 2009) for a fare, which was randomly assigned using a voucher system. When the bus service was free, 47 per cent of the surveyed individuals took the bus at least once. The proportion declined smoothly to reach zero at 500 kwacha (US$3.57) per ride. Similar results were obtained using the number of rides as the dependent variable. 273
Trade and Employment: From Myths to Facts appear to be enough, by itself, to get farmers to the market. In order to promote diversification at the country and household levels, governments may need to intervene directly in the provision of transportation services, a notion that goes against a philosophy of government retrenchment that has dominated development thinking over the last 30 years. Other sources of market failure can hamper export diversification. Conceptually, the argument is shown in figure 7.8, where the production-possibility frontier (PPF) between two goods is shown with a convex part, reflecting economies of scale in the production of “good 2” in a certain range (at low levels of production). 21 This is a classic infant-industry argument. At the relative prices shown by the dotted lines, the economy can find itself stuck at corner equilibrium E 1 where it produces only “good 1” because the curvature of the PPF makes it locally unprofitable to move resources to good 2, even though the economy would be better off at the diversified equilibrium E 2 . In such circumstances, sectorally-targeted industrial policy can have a socially beneficial role to play. The argument is crucially dependent on the presence of some sort of increasing returns at the industry or cross-industry level. Do these externalities exist outside of development-economics textbooks? Rosenthal and Strange (2004) present a substantial body of evidence in favour of spatial agglomeration externalities. More recently, Alfaro and Chen (2009) show evidence that the location of establishments by multinational companies follows not only “first-nature” determinants (proximity to markets Figure 7.8: Externalities in a two-good economy 21 On this, see Harrison and Rodríguez-Clare (2010), who provide an excellent overview of the literature on industrial policy. 274 Good 1 E 1 PPF Zone of increasing returns / agglomeration in the production of good 2 World relative-priceline E 2 Good 2 Targeted by IP
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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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