The rise of the machines: Capital imports and real manufacturing wages in 57 nations

Outward-oriented policy reform has attracted a large number of academics to the study of the trade-labour market nexus. One of these fields has focused on capital intensive (machinery) imports and its effect on manufacturing wages. The skill-enhancing-trade (SET) hypothesis was put forth to explain a potential relationship where an inflow of capital imports results in increased demand for skilled labour and decreased that of unskilled labour, and thus resulted in a rise in skilled wages and a decrease in their unskilled counterparts. This study revisits this hypothesis with a panel from the manufacturing sector of 57 nations. We improve upon previous studies in a number of ways. We add developed nations to the sample and examine capital imports from rich countries as well as the rest of the world. This takes into account the prominence of vertical production networks in international trade. We adhere closely to the neo-classical trade model and employ definitions of skilled and unskilled workers that capture the production process of particular items. Finally, we fit a robust dynamic panel data model that accounts for the endogeneity of the determinants of trade and wages. In this way we test whether the SET hypothesis is generally applicable as opposed to previous studies which use an ad hoc selection of countries and variables. We find that the SET hypothesis is not driving changes in manufacturing wages. Instead, worker productivity and GDP per capita explain these labour market outcomes.     

Jobs and Exposure to International Trade within the Service Sector in Sweden

To establish in which service industries there is international trade (or it may potentially exist), we calculate locational Ginis for different industries. The basic idea is that from this measure of regional concentration of different activities within a country we can identify industries where there appears to be regional trade, and hence also a potential for international trade. Based on our method, we find that: (i) the number of employed in tradable service appears to be at least as large as in the manufacturing sector, (ii) tradable service is much more skill intensive than manufacturing, and (iii) lately, the employment in tradable service has increased substantially. We argue that the last mentioned result is consistent with the substantial growth of skilled labour in Sweden since the mid‐1990s (Rybczynski effect) and factors leading to increased relative demand for skilled labour. Particularly, increased competition from and offshoring to low‐wage countries seem recently to have had a considerable impact on the creation of skilled jobs and the displacement of less skilled jobs in the tradable sector in Sweden. Furthermore, we apply a similar method as for industries to identify tradable occupations. Using our classification of tradable industries and tradable occupations in a Mincer type wage equation, we find that workers in such industries and occupations receive a wage premia of 12–13 per cent.     

Mind the Gender Wage Gap – the Impact of Trade and Competition on Sectoral Wage Differences

This paper examines differences between women’s and men’s wages in 18 selected OECD countries in the period 1970 to 2005. The study is based on 12 manufacturing sector‐ and skill‐specific sets of panel data on the gender wage gap. We apply a system generalised method of moments (GMM) estimator to the extended version of the conditional gender wage gap convergence equation, controlling for sector concentration and industry‐specific measures of openness using a difference‐in‐difference approach: trade‐affected concentrated sectors versus trade‐affected competitive sectors. The results indicate that: (i) an increase in sector concentration is associated with wage gap growth; (ii) both import and export penetration are associated with a reduction of the high‐skill gender wage gap growth in concentrated industries; (iii) there is evidence of a widening impact of trade on the medium and low‐skill occupational gender wage gap growth in less competitive industries; (iv) institutional regulations of the labour market have an impact on the development of the gender wage gap: for highly‐skilled labour an increase in labour market regulation raises the growth of the gender wage gap, while for medium‐ and low‐skilled workers, it lowers it.     

Why India Lags Behind China and How It Can Bridge the Gap

Though India has been growing at six per cent annually since the late 1980s, it trails behind China, which has been growing at ten per cent per annum since 1981. The single most important factor explaining this difference is the relatively poor performance of Indian industry. Whereas the share of industry in China's GDP rose from 42 per cent in 1991 to 51 per cent in 2001, it remained virtually stagnant in India. By contrast, services grew rapidly in India, expanding from 42 per cent in 1991 to 48 per cent in 2001. With the information technology sector less than two per cent of the GDP, services growth was largely in the informal sector. Approximately 77 per cent of India's workers live in rural areas. To bring a large chunk of this workforce into the modern sector, India must achieve a much higher growth in the traditional, unskilled‐labour‐intensive industry. Growth in the information technology sector gives India an extra lever but cannot be the main engine of transformation. Therefore, the right approach is to walk on two legs: traditional labour‐intensive industry and the modern IT industry. Both legs need strengthening through further reforms. The paper suggests four specific reforms, three for industry and one for IT, necessary to achieve the transformation to a modern economy.     

Trade in Services and TFP: The Role of Regulation

What determines total factor productivity (TFP) growth in services: is it services trade or services–trade regulation? To respond to this question, we use four indicators of international trade in services since 1990 to 2005, namely foreign direct investment (FDI) inward stock, services imports, domestic sales of foreign affiliates (FATS) and FDI inflows, to examine what type of services trade forms a direct determinant. Subsequently, we analyse what type of sector‐specific regulation has played an inhibiting effect on services TFP growth. Such analysis contrasts with former studies in which mainly factor inputs and economy‐wide regulation are used to explain services TFP. This paper provides evidence that neither trade nor entry barriers are robust determinants to explain cross‐country differences. Instead, regulations on operational procedures affecting the variables costs structure of the firm seem to play a more important role in explaining TFP growth between countries, particularly in combination with information and communication technology (ICT) capital.     

Trade liberalisation and human capital adjustment

This paper highlights the way in which workers of different ages and abilities are affected by anticipated and unanticipated trade liberalisations. A two-factor (skilled and unskilled labour), two-sector Heckscher-Ohlin trade model is supplemented with an education sector which uses skilled labour and time to convert unskilled workers into skilled workers. A skilled worker's income depends on her ability, but all unskilled workers have the same income. Trade liberalisation in a relatively skilled labour abundant country increases the relative skilled wage and induces skill upgrading by the existing workforce, with younger and more able unskilled workers most likely to upgrade. But not all upgraders are better off as a result of the liberalisation. The older and less able upgraders are likely to lose. For an anticipated liberalisation we show that the preferred upgrading strategies depend on a worker's ability and that much of the upgrading will take place before the liberalisation. Hence some workers who would have upgraded had they anticipated the liberalisation will not if it is unanticipated, and adjustment assistance that applies only to post-liberalisation upgraders will fail to compensate some losers and distort the upgrading decisions of others.     

Enlargement and the Textiles,Clothing and Footwear Industry

The textiles, clothing and footwear (TCF) industry is a labour intensive industry, strongly determined by globalization and easy relocation to low‐cost countries. Hence also in the European Union this industry is relatively more important in the low‐wage regions of the EU‐Southern periphery. With the envisaged enlargement, however, these countries fear a further shift of the sector to Central and Eastern Europe as these countries still have a comparative advantage in terms of low labour costs. The present article investigates whether this fear is justified, looking at three main aspects: first at the position and history of the TCF sector in the European Union and its role in the EU periphery, second at the sector in the Central and Eastern accession countries, and third at gobalization issues. The second aspect is dealt with in great detail, as development trends in the Central and East European countries are important and telling. Much has happened during the 15‐year (and more) period between the collapse of communism and the EU membership in this region, most important the integration to the EU by the means of trade, in particular outward processing trade. These developments mainly seem to determine future trends in an enlarged Europe. Overall however, future prospects have to be seen in a global context, strongly influencing the sector via changes in global trade policies.     

Skill Upgrading and the Real Exchange Rate

This paper examines the effect of changes in the real exchange rate on skill upgrading in the case of Chile. Using plant‐level data from the manufacturing sector, we find that a real depreciation increases the share of skilled workers in the total wage bill in exporters but not in non‐exporters. This result suggests that depreciations or, more generally, increases in export profitability, may induce exporters to adopt more skill‐intensive technologies. This finding gives support to recent models of trade that highlight the possible effect of the real exchange rate on skill upgrading and wage inequality. This paper also finds that real depreciations increase plants’ export intensity, suggesting that skill upgrading for firms that are already exporters is the channel through which real exchange depreciations affect wage inequality.     

The Regulation of Professional Migration: Insights from the Health and IT Sectors in ASEAN

This paper develops several indicators to measure the extent and depth of rules governing international migration. It is set in the context of moves towards further liberalisation of services trade and associated labour mobility (Mode 4) under GATS and related regional trading arrangements. Ten Southeast Asian countries at various stages of economic development are examined as a case study, with special reference to health care and information technology. These sectors are priority sectors for regional cooperation in services trade in ASEAN, but were expected to represent opposite extremes in terms of the regulation of migration. The study finds that the more advanced countries tend to have more liberal regimes for international movements of skilled manpower, although there were smaller differences regarding general visa and work permit arrangements. Generic restrictions on mobility were related to trade policies, as well as to direct barriers (often country‐specific) to migration. They included minimum salary requirement, levies on foreign workers, economic needs tests, and limitations related to language, education and job experience. Controls were more extensive in the health care sector, related to social considerations as well as professional organisational interests.     

Can Africa compete with China in manufacturing? The role of relative unit labour costs

This paper examines sub‐Saharan Africa's (SSA ) bilateral trade and cost competitiveness with China. We document an extraordinary imbalance in the structure of bilateral trade in that China overwhelmingly exports manufactured products to SSA and almost exclusively imports primary products in return. Our principal means of assessing the competitiveness of SSA 's manufacturing sector vis‐à‐vis China are measures of relative unit labour costs (RULC ). We find that African RULC s declined over the 2000s as China's wages rose faster than Chinese productivity while the reverse was true for the SSA countries in our sample. Nevertheless, RULC s vis‐à‐vis China remain very high for many SSA countries. High RULC s along with weaknesses in the business climate suggest that most SSA countries are unlikely to be competitive in labour‐intensive manufacturing any time soon.     

The Developmental Impact of Asian Drivers on Kenya with Emphasis on Textiles and Clothing Manufacturing

(1251) Paul Kamau with Dorothy McCormick and Nicolas Pinaud Kenya has enjoyed a relatively diversified economy (at least by SSA standards), with light manufacturing industries in particular playing a significant growing role. The rise of Asian competition (locally, regionally and on third‐country markets), partly due to the erosion of trade preferences for clothing and footwear, has raised fresh policy challenges. The specific relevance of the clothing industry in the analysis of China’s and India’s impact on Africa is manifold: this is a low‐skilled labour‐intensive industry, and hence an avenue for African economies’ diversification; the competition from Asian producers vis‐à‐vis the SSA clothing industry is felt at the local, regional and global level (on third‐country markets): it is therefore direct and indirect; also, the Asian Drivers’ impact on African clothing industries has both a trade and investment dimension while being competitive and complementary.     

Trade,Technical Change,and Labour Market Adjustment

This paper empirically examines three possible reasons for the high and rising unemployment of low‐skilled employees in Germany: (i) an upsurge in inter‐industry trade, (ii) a skill‐biased technical change, and (iii) a failure of labour market adjustment. The empirical analyses indicate that an exogenous wage‐setting process as well as a bundle of factors, including a skill‐biased technical and structural change, have contributed to the decline in relative demand for low‐skilled employees in Germany. Thus, economic policy in Germany should focus on improving the employability of workers in the lower segment of the labour market and on raising the adjustment flexibility, above all the flexibility of the wage structure, of the German labour market.     

Education bias of trade liberalization and wage inequality in developing countries

The aim of this article is to examine the impact of increased trade on wage inequality in developing countries, and whether a higher human capital stock moderates this effect. We look at the skilled–unskilled wage differential. When better educated societies open up their economies, increased trade is likely to induce less inequality on impact because the supply of skills better matches demand. But greater international exposure also brings about technological diffusion, further raising skilled labour demand. This may raise wage inequality, in contrast to the initial egalitarian level effect of human capital. We attempt to measure these two opposing forces. We also employ a broad set of indicators to measure trade liberalization policies as well as general openness, which is an outcome, and not a policy variable. We further examine what type of education most reduces inequality. Our findings suggest that countries with a higher level of initial human capital do well on the inequality front, but human capital which accrues through the trade liberalization channel has inegalitarian effects. Our results also have implications for the speed at which trade policies are liberalized, the implication being that better educated nations should liberalize faster.     

信息通信技术对服务业“成本病”的影响研究——基于OECD国家生产率的增长核算分析

本文采用增长核算方法对1980-2003年部分OECD国家的服务业和制造业劳动生产率增长进行了贡献率分析。研究结果表明,信息通信技术(ICT)资本加深对服务业劳动生产率增长的贡献率远高于对制造业的贡献率,服务业劳动生产率增长落后于制造业的主要根源在于全要素生产率。ICT不能完全根治"成本病",但可以在一定程度上缓解服务业"成本病"。     

Foreign direct investment and civil violence in Sub-Saharan Africa

Despite the steady growth in foreign direct investment (FDI) flow into Sub-Saharan Africa (SSA), which is facilitated by the United Nations "2030 Agenda for Sustainable Development", economic development in SSA countries remains relatively weak, due in part to frequent incidents of civil violence. The critics of FDI inflow into SSA posit that the cross-border capital flow fuels civil conflict and unrest, whilst the proponents maintain that FDI inflow helps developing countries raise their economies. To reconcile these two views, this paper considers the impact of FDI on civil violence in SSA by distinguishing recipient industries of FDI. The results from a new general equilibrium theory suggest that an increase in resource-directed FDI inflow to countries where the resource sector is skilled labour (unskilled labour) intensive reduces (increases, respectively) the risk of violence. Using a panel data consisting of 34 SSA countries for 1972–2013, the dynamic panel estimates provide support for our theoretical findings. In particular, an increase in FDI inflow reduces the risk of civil violence for skilled labour intensive fuel-resource-rich SSA countries. However, the likelihood of violence can increase in FDI inflow for countries that are rich in unskilled labour intensive non-fuel, ore and other mineral resources.     

国际产品内贸易对中国收入分配的效应研究——基于中国工业行业数据的经验分析

采用中国35个工业行业的面板数据,检验国际产品内贸易对中国行业内部熟练劳动力和非熟练劳动力收入分配的效应。研究表明:现阶段,与技术进步相比,国际产品内贸易并不是造成中国收入差距拉大的重要影响因素;同时,由于中国熟练劳动力要素禀赋的相对缺乏,国际产品内贸易发生的行业要素密集度不同,对收入分配的影响也不同,其中劳动密集型和资本密集型行业内不同性质劳动者的收入差距会缩小,而技术密集型及兼具资本密集型和技术密集型的行业内收入差距则会拉大。     

Offshoring and the Skill‐premium: Evidence from Individual Workers’ Data

During the 1980s the United States has experienced an increase in both international trade and the skill‐premium. The association between these two phenomena has proven elusive in the early empirical literature on the subject. Indeed, the consensus among labour economists seems to be that trade has not been the main cause of such increase in the skill‐premium. This view has been challenged by Feenstra and Hanson (1999, Quarterly Journal of Economics, 114, 3, 907) who find that offshoring sizably affects the skill‐premium. I revisit this debate using individual workers’ data from the March Current Population Survey combined with industry‐level trade data. This strategy improves upon the work of Feenstra and Hanson who do not control for the demographic characteristics of the labour force. In my results, offshoring can explain between 9 and 30 per cent of the increase in the college wage premium, relative to high‐school workers. In addition, I find that offshoring can explain 21 per cent of the increase in the relative employment of skilled labour. These results suggest that offshoring may play an important role in the increase in the relative demand of skilled workers.     

Foreign Acquisition,Wages and Productivity

This paper studies the effect of foreign acquisition on wages and total factor productivity (TFP) in the years following a takeover by using unique detailed firm‐level data for Sweden for the period 1993–2002. The paper takes particular account of potential endogeneity of the acquisition decision (for example, due to ‘cherry picking’) by implementing an instrumental variable approach and propensity score matching with difference‐in‐difference estimation. Moreover, in line with the recent literature on firm heterogeneity and trade, this paper allows for the acquisition effect to differ depending on whether the targeted firms were domestic multinational or non‐multinationals before the foreign takeover. This paper also allows for the acquisition effect to differ depending on whether the acquisition is horizontal or vertical. Our results show that foreign acquisition has no effects on overall, skilled or less‐skilled wage growth, either in targeted Swedish MNEs or in targeted Swedish non‐MNEs or if the acquisition was motivated by vertical or horizontal motives. However, the results indicate that both targeted Swedish MNEs and non‐MNEs have better growth in TFP after vertical foreign acquisition only but no such impact from horizontal foreign acquisition.     

Composition of trade flows and the effectiveness of fiscal devaluation

We empirically explore whether the magnitude of the effects of fiscal devaluation, which consists of reducing the employers’ social security contribution rate and increasing the value‐added tax rate, depends on the composition of trade flows. Our sample comprises data on bilateral balances of trade between 28 European Union (EU) Member States and their main EU trade partners over the 2000–14 period. We use robust ordinary least squares regressions, controlling for the country‐pair and time fixed effects, to test whether there are differences in the sizes of relationships between these taxation forms and bilateral trade balances for different types of goods, by distinguishing between: (i) consumer, intermediate and capital goods; and (ii) labour and capital‐intensive goods. Our results show that the overall effectiveness of fiscal devaluation depends on the composition of trade flows. Value‐added tax is more strongly (positively) associated with (bilateral) balances of trade in consumer goods, compared to balances of trade in capital and intermediate goods. The employers’ contribution rate, in contrast, is more tightly (negatively) related to balances of trade in capital goods. The latter finding also holds true for trade balances of labour‐intensive goods compared to balances of capital‐intensive goods.     

Trade liberalization and the evolution of skill earnings differentials in Brazil

Skilled labor earnings differentials decreased during the trade liberalization implemented in Brazil from 1988 to 1995. This paper investigates the role of trade liberalization in explaining these relative earnings movements. We perform several independent empirical exercises that check the traditional trade transmission mechanism, using disaggregated data on tariffs, prices, earnings, employment and skill intensity. We find that: i) employment shifted from skilled to unskilled intensive sectors, and each sector increased its relative share of skilled labor; ii) relative prices fell in skill-intensive sectors; iii) tariff changes across sectors were not related to skill intensities, but the pass-through from tariffs to prices was larger in skill-intensive sectors; iv) the decline in skilled earnings differentials mandated by the price variation predicted by trade was even larger than the observed one. The results are compatible with trade liberalization accounting for the observed relative earnings changes in Brazil. They also highlight the importance of considering the effects of differentiated pass-through from tariffs to prices.