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

Trade and Employment: From Myths to Facts
Other externalities include information spillovers leading to underinvestment
in export entrepreneurship at the extensive margin (Hausmann and Rodrik, 2003).
That is, export expansion at the extensive margin reflects a “self-discovery” process
whereby export entrepreneurs test the viability of new products on foreign markets.
Once they succeed, imitators follow, creating a public-good problem. Spillovers at
the extensive margin among exporters of the same country are documented using
firm-level data from four African countries by Cadot et al. (2011), who find that the
probability of survival of an exporter of good k to country d past the first year rises
with the number of exporters of k to d from the same country. Strikingly, the number
of exporters of k to d from other countries is insignificant, suggesting that the externality
is essentially within-country. Interacting this network effect with various measures of
dependence on finance suggests that the information spillover may go through domestic
credit markets (using competitor performance as a substitute for direct
information on export risk) rather than through the direct firm-to-firm imitation
effect postulated by Hausmann and Rodrik, although the implications are similar.
If the case for externalities across exporters and industries seems fairly well-established
both conceptually and empirically, what governments can do to leverage
those externalities is less clear. Harrison and Rodriguez-Clare (2010) give a long list
of studies whose gist is that industries supported by government protection in one
form or another do not enjoy faster productivity growth. However, all these studies
are vulnerable to the endogeneity critique of Rodrik (2007). Namely, if governments
support industries to compensate for market failures, slower productivity growth in
supported industries may reflect the underlying constraints rather than the effect of
(endogenous) industrial policies.
A few case studies identify industries successfully supported by industrial policy.
For instance, Hansen, Jensen and Madsen (2003) show how Denmark’s subsidies to
wind power (a guaranteed-price scheme for wind power combined with an obligation
to buy for power companies that was also adopted in other EU countries, and a
favourable tax treatment of investments in wind-turbine manufacturing) have helped
create an industry that, by the early 2000s, supplied half the world’s demand for
wind turbines. As export sales were not subsidized (although they could possibly be
cross-subsidized by Denmark’s four large manufacturers), their growth was suggestive
of success. Hansen, Jensen and Madsen indeed show evidence of strong learning
economies. They also argue that overall benefits from the industry’s development
had, by the early 2000s, outweighed the total cost of the subsidies, although the calculation
is complex.
Export promotion has a more uneven record. After reviewing the mixed evidence
so far, Lederman, Olarreaga and Payton (2006, 2009) find, on the basis of crosscountry
evidence, extremely high rates of return on public money invested in
export-promotion agencies (EPAs). Some conditions, however, must be fulfilled, including
private-sector involvement in agency management. They also find strongly
diminishing returns; that is, a little money does a lot of good, but a lot of money
does not. A recent impact evaluation of Tunisia’s export-promotion agency by
Gourdon et al. (2011) sheds some light on whether export promotion promotes
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