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

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Chapter 7: Trade diversification: Drivers and impacts but also as a way of fostering manufacturing employment growth. One of the main policy tools used for this objective is the creation of export processing zones (EPZs). 26 EPZs have spread rapidly over the last two decades. The ILO’s EPZ database counted 176 of them in 47 countries in 1986; by 2006, there were 3,500 in 130 countries. Overall, they account for 68 million jobs worldwide, a sizeable figure which, however, represents only a very small share of global employment. Table 7.3 shows that the share of national workforces employed in EPZs is above 1 per cent only in the Asia and the Pacific region (which accounts for 61 million of the 68 million worldwide in EPZ employment), in the Americas, and in the Middle East and North Africa (MENA) region. Table 7.3: Direct employment in EPZs, 2007 Direct employment % of nat. (millions) employment Global 68.441 0.21 Asia & Pacific 61.089 2.30 Americas 3.084 1.15 Western Europe 0.179 0.00 CEECs & Central Asia 1.590 0.00 MENA 1.458 1.59 Sub-Saharan Africa 1.040 0.20 Source: World Bank (2008), table 15. Outliers include Mauritius, whose EPZ accounts for 24 per cent of its workforce, the United Arab Emirates (UAE) (25 per cent) and Tunisia (8 per cent). In addition to generating relatively modest increases in employment, EPZs have sometimes been criticized for relying on anti-union regulations and lax labour standards to attract investors (see, for example, ILO, 2003; or ICFTU, 2003). For instance, collective bargaining and freedom of association are restricted in EPZs in the Dominican Republic (a highly successful one in terms of employment), as well as Bangladesh, Egypt, Nigeria, Pakistan, Panama and Sri Lanka. Strikes are banned in the EPZs of Bangladesh, Namibia, Nigeria, Panama, Turkey and Zimbabwe (World Bank, 2008). Other EPZs, however, show a less labour-hostile set up; for instance, those of the Philippines, Singapore, and Trinidad and Tobago have labour representatives on their boards. In terms of wages, fragmentary evidence suggests that they tend to be higher inside EPZs than outside (Kusago and Tzannatos, 1998). 26 Export processing zones (EPZs) are also known under various other names, such as “free zones”, “special economic zones”, etc. For simplicity, this chapter uses “EPZ” throughout to designate all such zones, irrespective of their precise legal form. 283
Trade and Employment: From Myths to Facts Beyond their record on employment creation and labour relations, Farole (2010) notes that EPZs have a highly uneven record as tools of industrial policy. Few of them have led to substantial skill development, the most notable exception being Malaysia’s Penang Skills Development Centre. In Africa, in particular, EPZs do not seem to have played the role of catalyst for foreign investment that authorities hoped for them. In essence, EPZs were viewed by governments — and sometimes donors — as ways of cutting through “impossible reforms”. When reforms aimed at the elimination of red tape, high tariff or non-tariff barriers on intermediate products, or predatory taxes seemed impossible, it was hoped that fencing exporters in a sort of good-governance enclave could offer an attractive alternative. But, as Farole notes, EPZs have tended to flourish in countries that were otherwise improving governance and moving forward with reforms. In countries plagued by bad governance and political instability — in particular, in sub-Saharan Africa — EPZs failed to shelter investors and consequently never really took off. Farole’s cross-country regression of EPZ export performance on EPZ characteristics showed little correlation with labour costs (suggesting that “social dumping” was a poor way of luring investors) and even with the size of fiscal incentives; instead, performance seemed to correlate with the EPZs’ infrastructure and logistics quality. The main lesson from Farole’s study (whether from the econometrics or from the narrative based on case studies) is that EPZs are no substitute for domestic reforms. Far from being sheltered enclaves, they reflect the general quality of the host country’s business environment. Thus, countries whose export portfolios are dominated by a few primary products can hardly count on EPZs alone to generate export diversification. Ironically, the failure of Africa’s EPZs to generate sizeable employment in the garment sector prompts Farole to recommend targeting natural-resource based sectors for EPZ development in Africa, thus eliminating the possibility of export diversification. 7.6 IMPORT DIVERSIFICATION, EMPLOYMENT AND INDUSTRIAL POLICIES Trade diversification concerns imports at least as much as exports. With trade liberalization, countries increase their imports at the intensive margin (i.e., an increase in the size of already existing imports) but they also import new goods/varieties. This leads to a higher import diversification, which has important implications for aggregate welfare, productivity, employment and inequality. The next sections focus on these areas. 7.6.1 Gains from diversity and “import competition” Following Krugman’s (1979) seminal paper, several theoretical papers include a “lovefor-variety” element capturing the gains from trade resulting from the imports of new varieties (i.e. an increase in import diversification). Empirical work assessing these gains remains scarce, however. Broda and Weinstein (2006) do just this, showing that, 284
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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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