Download LINKAGES BETWEEN TRADE, FDI, JOBS, PRODUCTIVITY AND EQUALITY: MYTHS AND EVIDENCE

LINKAGES BETWEEN TRADE, FDI,
JOBS, PRODUCTIVITY AND
EQUALITY: MYTHS AND EVIDENCE
Expert Group Meeting on Inclusive and Job-Enhancing
Trade: Asia-Pacific Opportunities
14 December 2012
UN ESCAP
Susan Stone, Development Division
Trade and Agriculture Directorate
Introduction
• Linkages are many and not well
understood:
– Trade generally thought to be growth
enhancing but notable exceptions reported.
– Productive firms tend to export rather than
exporting creating productive firms.
– Inequality thought to be more a function of
SBTC but trade can be a vector of technology
transfer.
OECD Trade and Agriculture Directorate
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Inclusive trade
• Broad concept – access to opportunity.
• Can relate to labour markets on numerous
levels:
– Wages
– Income (including transfers)
– Formality
– Quality of work
– Distribution of returns (between types of
labour as well as between capital and labour)
OECD Trade and Agriculture Directorate
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Links – Some ‘Facts’
• Trade generates jobs and raises incomes.
– Neither rising trade integration nor financial openness has been
found to have a significant impact on either wage inequality or
employment trends within the OECD countries (OECD 2011).
• FDI can lead to spillovers in both economic activity and
technology adoption.
– Being a foreign affiliate has been positively linked with
technological innovation and productivity increases (HallwardDriemeier, et al. 2002) .
• Participation in international activity (both importing and
exporting) can lead to productivity gains.
– Intermediate imports have been empirically linked to firm level
productivity gains (Stone and Shepherd 2011).
OECD Trade and Agriculture Directorate
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Market Openness Yields Benefits for
the Labour Market
Source: Flanagan and Khor (2011)
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Market Openness Yields Benefits for
the Labour Market
Table 4. Labor Conditions - Recent Developments
Percent Change Since 1999
2008
Working Conditions
Asian
Non-Asian
Asian
Non-Asian
Hourly compensation
37.0
19.43
236.6
152.6
Annual Work Hours
2156
1914
2.3
.2
Job Accident Rate
5.9
n.a.
-22.2
n.a.
Labor Rights
Asian
Non-Asian
Child Labor
Civil Liberties
4.5
2.0
Note: Labor force w eighted estimates.
Sources: See Appendix A.
Asian
-8.1
Non-Asian
-22.3
Source: Flanagan and Khor (2011)
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Other Findings for Asia
• Broad improvement in labor conditions in Asia
and other countries accompanied globalization of
late 20th and early 21st century (Hoekman and
Winters 2007).
• Main influence of increased trade flows on labor
conditions is indirect through its impact on per
capita GDP.
– Advances in per capita GDP advance labor conditions
Flanagan and Khor 2011).
• Poor labor conditions do not attract
disproportionate shares of world FDI.
– Market size and investment risk are the dominant
influences on FDI (OECD 2008).
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Links – Some ‘Myths’
• Import substitution preserves domestic
employment (McMillan, et al. 2010).
• FDI always leads to technology spillovers.
• Participation in GVCs leads to economic
upgrading (Harrigan and Reshef 2012) .
• Export led growth leads to improved labour
market outcomes.
– Evidence from China shows exporters pay lower
wages and are less productive than non-exporters
(Seker 2011).
• Its possible to assign ‘blame’ for economic
outcomes exclusively on the shoulders of trade.
OECD Trade and Agriculture Directorate
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Workforce Composition of Five GVCs
Type of Work
Economic Upgrading
Source: Barrientos et al. (2010)
OECD Trade and Agriculture Directorate
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International Participation and Wage
Outcomes
• Even if trade tends to raise average incomes and wages
across countries, it is important to look beyond averages and
consider the distributional consequences.
• Trade may have some effect on wage inequality for workers
in the formal sector as skilled workers tend to benefit
disproportionately in both rich and poor countries –
although evidence is partial and mixed.
• More importantly, the trade literature has shed virtually no
light on its effects on the distribution of household incomeand consumption inequality.
OECD Trade and Agriculture Directorate
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Trade and Labour Market Conditions
• Trade more commonly associated with improved working
conditions, contrary to the popular misconception of
”race-to-the-bottom” oppressive conditions.
• Whether the measure is child labor, injuries on the job,
informality, or effects on female labor, the evidence is that
these dimensions are more often than not determined by
levels of per capita incomes, labor policies, and
regulations rather than trade.
• And to the extent that trade tends to raise per capita
incomes, it would impact positively the working
conditions.
OECD Trade and Agriculture Directorate
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Trade versus FDI
• Complex relationship between investment, and trade
flows – especially with the rise of GVCs.
• To the extent that globalization contributes to income
inequality, the main element appears to be financial
flows associated with direct investment rather than
trade flows per se – and these refer to affects in
developed economies (OECD 2011).
• Productivity gains associated with exporting might be
related to FDI.
– Firms getting ready to become exporting as part of global
network.
OECD Trade and Agriculture Directorate
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How might outcomes for Developing
Countries Differ?
• Where developed economy literature focuses on selfselection by productive firms, evidence of learning-byexporting more prominent for developing economies
(e.g. Van Beisebroeck, 2005).
• Benefits shown to depends on where along the value
chain economic actors reside (e.g. Bacchetta et al
2009, Menezes-Filho and Muendler, 2011)
• Affected by the underlying skill-employment mix in
the economy (e.g. Harrigan and Reshef, 2012, Isgut,
2012).
OECD Trade and Agriculture Directorate
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Preliminary Results from OECD study
• Labour demand and wage equations provide
results consistent with those seen in developed
country literature:
– International participation (exporting, foreign
affiliates and importers) hire more workers and pay
higher wages.
• Results for labour demand positive and strong.
• Wage results cast doubt on findings for some key
economies.
– No significant wage effects found for Brazil, China,
India, Indonesia, and South Africa.
OECD Trade and Agriculture Directorate
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Summary of findings for skilled workers
• Contrary to evidence for developed economies,
exporting is not significantly associated with
hiring more skilled workers.
• Consistent with developed country evidence,
foreign affiliates do hire more skilled workers.
– But only true for entire sample, not Key Partner or
OECD subsamples.
• Contrary to emerging findings, importers are
associated with hiring fewer skilled workers.
– However, not statistically significant for Key
Partner countries.
OECD Trade and Agriculture Directorate
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Summary of Findings for Female Workers
• More evidence of positive role of (proxied)
GVC participation:
– Exporters and importers show strong positive
association for whole sample.
– Key Partners exporters show weak positive
association.
• Foreign Affiliation seems to only matter in
OECD subsample.
OECD Trade and Agriculture Directorate
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So What to do About Effects of Trade
Opening?
•
•
•
•
Very real effects on distribution.
Time Differentials.
Spillovers – both positive and negative
Growing evidence of heterogeneous firms:
– Many different types of firms (especially in
terms of productivity).
• Role of policy to influence economic
outcomes:
– Moving ‘up’ ladder.
OECD Trade and Agriculture Directorate
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Is Trade Policy the Right Tool?
• Why does trade have to be ‘inclusive’ when
most forms of economic growth are not?
• Focus should be on complementary policies
that assist in transition and structural reform.
• Issue one of timing – trade improves prospects
for growth and economic opportunities but not
to all and not at the same time.
– About adjustment costs.
• Need to manage opportunities brought with
open markets but what goes on behind the
border matters.
OECD Trade and Agriculture Directorate
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But Policy Does Matter
• For lower -income countries, greater attention to financial
market development (to enable new investment in job-creating
internationally competitive sectors).
• Social safety nets, conditional cash transfer programs and the
like, must be in place.
• Over the longer term, policies to support growth have positive
interaction (in terms of job creation) in the presence of open
trade regimes. These include investments in education and
infrastructure which attract international activity.
• Working with other countries to bring down trade barriers at
the multilateral level can expand opportunities for firms to sell
to wider markets, import new products and technologies, and
grow faster.
OECD Trade and Agriculture Directorate
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Capturing the Gains Inclusively
• As trade becomes more about tasks and productivity
of individual (firms and people) key is the ability of
labour to supply appropriate range of skills.
• How does the growing importance of networks impact
labour market?
– The interdependence of imports and exports.
– The importance of foreign investment and capital
mobility.
– Relative distribution of returns – across labour types and
between capital and labour.
• Labour’s share in national income
– Fallen since the 1990s in nearly three quarters of the 69
countries for which data were available.
OECD Trade and Agriculture Directorate
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Thank you for your attention
Susan Stone
www.oecd.org/trade
Trade and Agriculture Directorate
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