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

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Trade and Employment: From Myths to Facts their own subjects (e.g. consumers, firms) in what has been called “generative social science” (Epstein, 2006). Essentially, the argument is that if the researcher can build a computerized society that has the same large-scale properties as the actual, legitimate experiments can be run “en silica”, that is on computers. Here, realism is of the essence: if the model conforms to some erstwhile theory, itself the product of an oversimplified view of a social process, the simulation is of less value that one that more accurately replicates the measured properties in the real economy. Simulation methods are widely used in virtually every branch of scientific inquiry. They escape the fundamental problems of econometrics of omitted variable bias and reverse causality by providing a more complete account of the object of analysis. On the other hand, the models have been criticized as “works of fiction” by philosophers of science. Finally, as seen in detail below, different models yield different results and it is therefore incumbent on policy-makers to make their own judgment about the relative realism of the models at their disposal. 3.2.4 Overcoming implementation obstacles As noted by Gibson (2008b), data in developing countries can be reliable, noisy and/or unreliable according to whether there are errors in the data collection process and whether these errors tend to cancel out. 14 Errors also result from changing definitions as well as the standard index number or aggregation problem. Populations tend to be more heterogeneous in developing countries and income is often badly distributed, leading to problems with aggregating rich and poor. Most fundamentally, aggregation problems are more likely to occur in developing countries because the social structure is rapidly changing. Governments and non-governmental organizations (NGOs) often lack budgets to do an adequate job of collecting, cross-checking and validat ing data. The existence of a large informal or traditional sector also causes significant problems, especially in agriculture, which can make up more than half the economy. Auto-consumption and barter are perennial problems, of course, and investment in the informal sector is particularly difficult to track, often appearing in the national accounts as consumption (Taylor, 1979, p. 23). Employment data, especially when produc tive sectors are changing rapidly in response to trading opportunities, can be unreliable and tend to cover urban areas only. With technocrats in short supply, data gathering may be hampered by poorly trained or untrained field workers, especially for qualitative methods. Cost-minimizing sample design will lead to over-sampling of urban households (Deaton, 1995, p. 1790). Gibson (2008b) lists specific sampling problems including: stratification and cluster bias; groups of in dividuals with similar unobservable characteristics, such as ability or entrepreneurship; weather; tastes; or prices. There is also selectivity bias, 14 See the special issue of the Journal of Development Economics on data problems in developing countries. An overview is provided in Srinivasan (1994). There is no econometric test for unreliable data. 72
Chapter 3: Assessing the impact of trade on employment: Methods of analysis non-random reasons why some individuals enter a given sample. Un certainty and inefficiency in tax laws may cause inaccurate reporting. There may also be principalagent problems, in which respondents misrepresent their objective conditions when it is in their interest to do so. Some data problems are specific to the models discussed in this chapter. Raw social accounting matrix (SAM) data, for example, is collected and processed by different agencies or ministries with different missions, budgets, effectiveness and capabilities. As noted in Gibson (2008b), most developing countries base their GDP estimates on the production rather than demand side. If the estimates are based on “flow of product” concepts, the underlying information will vary from sector to sector and reflect tax avoidance strategies. Balance of payments data, necessary for trade analysis, may not agree with national accounts for ex ports and imports because of rapidly changing and distorted exchange rates, currency controls and import licensing. The ministry of interior or labour may handle household surveys with help from the World Bank, ILO or NGOs. Household surveys are often inconsistent with data for consumption in national accounts (Gruben and McLeod, 2002). The two generally accepted methods of dealing with data problems in developing countries are cross-check and correlation. Correlation is a more elaborate process and integrates econometric methods into the process of consistent data generation, as for example is undertaken in the study cited above by Gruben and McLeod. Purchasing power parity (PPP) methods, which correct for the effect of asset demand on exchange rates, can be used for cross-country comparisons. Sequences of SAMs can be used to cross-check investment, depreciation rates and capital accumulation. Financial data from balance sheets from firms and central banks can also be used, although procedures are in their infancy. Data from agencies regulating financial practices, labour standards and environmental compliance may also be employed. It must be borne in mind that models based on unreliable data are themselves unreliable, despite any other attractive properties they may possess. Unreliable data are data measured with error, but if the error is not random and does not cancel out, bias will result. Since data can be and often are produced by individuals who lack knowledge of proper sampling procedures, or indeed with political or self-interested motives, no corrective procedures are available. 3.3 ASSESSING THE EMPLOYMENT IMPACT OF TRADE: SIMULATION METHODS Simulation methods of different levels of sophistication exist to evaluate the employment impact of trade. More sophisticated methods typically give a more complete picture of the employment effects of a change in trade policy or flows. Yet they also tend to be more difficult to use because they are more complex and tend to have ambitious data requirements. In the following, simulation methods are discussed in order of increasing level of sophistication. 73
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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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TRADE AND THE INFORMAL ECONOMY 4.1
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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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A third view is that the type of jo
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REFERENCES Chapter 5: Gender aspect
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