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

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Chapter 7: Trade diversification: Drivers and impacts effects. 28 Kasahara, and Rodrigue (2008) use Chilean manufacturing plant data from 1979 to 1996 and find a positive and immediate impact of increased use of imported inputs on importers’ productivity. They also provide some evidence of learning by importing (i.e. past imports positively impacting current productivity). Muendler (2004), however, does not find a substantial impact of increased use of imported inputs on productivity for Brazil in the early 1990s. Loof and Anderson (2008) use a database of Swedish manufacturing firms over an eight-year period (1997-2004) and find that the distribution of imports across different origin countries matters (i.e. productivity is increasing in the G7-fraction of total import). Bas and Strauss-Kahn (2011) distinguish varieties imported from developed and developing countries and find a similar result. By and large, empirical studies thus evidence that diversification of imported inputs increases the productivity of domestic firms. Although productivity gains may occur through different channels: increased quality and/or complementarity, very few papers to date analyse the relative contribution of these mechanisms. Halpern, Koren and Szeidl (2009) stands as an exception. The authors use a panel of Hungarian firms from 1992 to 2003 to examine the quality and variety channel (imported inputs are assumed to be imperfect substitutes for domestic inputs), through which imports can affect firm productivity. 29 They find that imports lead to significant productivity gains, of which two-thirds are attributed to the complementarity argument and the remainder to the quality argument. Obviously, these two mechanisms have different implications on the economy. When quality is important, an increase in imported inputs entails large import substitution, hurting domestic intermediate goods producers and thereby employment. By contrast, when complementarities matter, an increase in imported inputs affects the demand for domestic goods much less, because they must be combined with foreign goods to maximize output. Thus, employment is barely impacted. Diversification in imports of intermediate goods may also affect the number of goods produced domestically (diversification in production) and exported (diversification in exports). Kasahara and Lapham (2006) extend the Melitz model to incorporate imported intermediate goods. In their model, productivity gains from importing intermediates (through the increasing returns to variety in production) may allow some importers to start exporting. Importantly, because imports and exports are complementary, import protection acts as export destruction. Goldberg et al. (2010) show that imports of new varieties of inputs lead to a substantial increase in the number of domestic varieties produced. The paper provides evidence that the growth in product scope results from the access to new varieties of imported inputs rather than the decrease in the import price index for intermediate products. Finally, Bas and Strauss-Kahn (2011) provide robust evidence of the role of an increase in 28 Interestingly, the effect of a decrease in input tariffs is much larger (more than twice as large) than the one found with a decrease in output tariffs. 29 Their model includes a term related to the number of intermediate imported goods in the production function, which reflects the complementarity channel. 287
Trade and Employment: From Myths to Facts imported intermediate inputs on the number of varieties exported. The effect occurs through an increase in firms’ TFP. Empirical works to date thus confirm that an increase in imported input diversification raises productivity. The increase in productivity results from better complementarity of imported inputs with domestic varieties and learning effects of foreign technology. The increased diversification in imported inputs also entails an increase in the number of domestic varieties produced and exported. It therefore impacts greatly the economic activity. Concerning the effect of increased diversification on employment, the evidence is scarce. As far as we know, no study analyses the impact of imported input diversification on the labour market. Productivity in most studies is measured as total factor productivity and is therefore X-neutral (no impact on employment through variation of the input mix). More generally, one may wonder how productivity gains affect employment. Unfortunately, and as is common in the literature, there is no clear-cut answer to this question. The seminal work by Gali (1999) finds that productivity gains resulting from positive technology shocks reduced hours worked for the United States and several other G7 countries, except for Japan. While these findings were reinforced by consecutive studies (for example, Gali, 2004; Basu, Fernald and Kimball, 2006; or Francis and Ramey, 2005), other studies have challenged these views, primarily on methodological grounds, finding positive correlations of hours worked with technology shocks. These studies include Christiano, Eichenbaum and Vigfusson (2003), Uhlig (2004) and Chang and Hong (2006). In a nutshell, and apart from the different specifications used in the papers, the impact on employment seems to depend on whether labour productivity or TFP is considered, and on the time lag (i.e. short-run and long-run effects differ). It also varies widely across industries (see Chang and Hong, 2006). In the long run the positive effect of productivity gains on employment seems predominant (for example, this result is also found in the procontractionary paper of Basu, Fernald and Kimball, 2006). Concerning the measure of productivity, a negative correlation between increased labour productivity and hours worked is common to most studies. As explained in Chang and Hong (2006), labour productivity reflects change in input mix as well as improved efficiency. Thus, changes in input prices affecting the material-labour ratio increase labour productivity, whereas TFP is unchanged. How can we use this information in our context? As seen above, the increased diversification of imports affects productivity mostly through the channels of better complementarity and learning spillovers. The channel of decreased intermediate input prices leading to increased labour productivity, and consequently decreased employment, is far less important. 7.6.3 Productivity gains and absorptive capacities The effect of an increase in imported input diversity on productivity is likely to depend on the level of the absorptive capacities of the importing country. Human capital and spending in R&D stand out as the main absorptive capacities in term of adoption and integration of foreign technologies into domestic production process 288
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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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