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

Chapter 2: New evidence on trade and employment: An overview
Figures 2.3.a and 2.3.b repeat this exercise using long differences. For example,
figure 2.3.a shows that, between 1980 and 2005, China reduced its industrial tariffs
by 40 percentage points and increased the number of workers employed in the industrial
sector by a little under 40 million. When China is excluded from the sample,
the long-run correlation between tariffs and employment is statistically significant
and negative indicating that a reduction in tariffs is positively correlated with industrial
employment. However, the R-squared on this regression is only 0.05 and
figure 2.3.b reveals once again a lot of heterogeneity in experiences across countries.
In figures 2.4.a and 2.4.b we examine the relationship between tariffs and real
industrial wages. Both figures reveal a tremendous amount of variation in changes
in tariffs with very little variation in real wages. The negative intercept of the regression
line in figure 2.4.b is consistent with the trends shown in table 2.4: on average, real
industrial wages in developing countries have fallen.
It is important to keep in mind that the revealed correlations do not rule out
strong effects on individual countries. To the contrary, these figures raise a number
of interesting avenues for further research. For example, China and India both experienced
similar reductions in tariffs of around 40 percentage points over the long
run. Why did industrial employment in China boom while in India, one of the
most aggressive liberalizers of all, industrial employment only increased modestly?
Figure 2.3.a: Long-run association between trade liberalization and employment,
developing countries
Long diff. level change in employment
No. of workers (thousands)
0 10000 20000 30000 40000
CHN
Fitted line
PER
IND
GTM BRA
CRI
BGR
TUR
IDN
LKA
SLV ECU EGY
IRN
COL HND
MDG
PAN PHL PAK MARMUS SEN
THA
UGA URY HTI GHA MEX TUN ALB BOL NPL JAM
UKR ARG
POL
VNM
MYS BGD
CHL MWI JOR TZA PRY LSO LTU CAF ZAF SYR VEN CMR ETH FJI NICNGA ZWE LVA BWA KENCIV
ROM
RUS
DZA PNG
–60 –40 –20 0 20
Long diff. level change in tariffs (Percentage points)
Source: UNIDO INDSTAT2 (2009); Economic Freedom of the World (2009).
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