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Trade Openness: New Evidence for Labor-Demand Elasticity in Pakistan's Manufacturing Sector

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Author Info

  • Bushra Yasmin

    ()
    (Fatima Jinnah Women University, Rawalpindi, Pakistan.)

  • Aliya H. Khan

    ()
    (Quaid-i-Azam University, Islamabad, Pakistan.)

Abstract

This study is an attempt to investigate trade–labor market linkages in Pakistan. Our main hypothesis that trade liberalization leads to an increase in labor-demand elasticity is empirically verified using a panel data approach for the period 1970/71–2000/01 for 22 selected manufacturing industries in Pakistan. We use ordinary least squares to estimate models in levels and first-differences, in addition to a fixed effects model. Overall, our findings suggest weak evidence of increased labor-demand elasticity as a result of trade liberalization in Pakistan’s manufacturing sector. Nor does the study find support for a positive labor market and trade linkage from an employment point of view—as otherwise suggested by standard trade theory. This may be due to increased capital intensity in the manufacturing sector by time, and the infusion of new technology. It could also be attributed to labor market imperfections preventing trade liberalization from favorably influencing employment conditions in Pakistan. Our policy recommendations based on the study’s results stress the need for skill enhancement measures to increase labor productivity, helping it become competitive according to the demands of globalization.

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File URL: http://121.52.153.179/JOURNAL/LJE%20Vol%2016-2%20%2823-12-11%29%20pdf/03%20Bushra%20and%20Aliya%20ED%20ttc%20221211.pdf
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Bibliographic Info

Article provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.

Volume (Year): 16 (2011)
Issue (Month): 2 (Jul-Dec)
Pages: 55-85

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Handle: RePEc:lje:journl:v:16:y:2011:i:2:p:55-85

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Related research

Keywords: Trade openness; labor-demand elasticity; Pakistan.;

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References

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  1. Giovanni S.F. Bruno & Anna M. Falzoni & Rodolfo Helg, 2004. "Measuring the effect of globalization on labour demand elasticity: An empirical application to OECD countries," KITeS Working Papers 153, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Feb 2004.
  2. Greenaway, David & Hine, Robert C. & Wright, Peter, 1999. "An empirical assessment of the impact of trade on employment in the United Kingdom," European Journal of Political Economy, Elsevier, vol. 15(3), pages 485-500, September.
  3. Slaughter, Matthew J., 2001. "International trade and labor-demand elasticities," Journal of International Economics, Elsevier, vol. 54(1), pages 27-56, June.
  4. Uma Karmbhampati & Pravin Krishna & Devashish Mitra, 1997. "The effect of trade policy reforms on labour markets: evidence from India," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 6(2), pages 287-297.
  5. Krishna, Pravin & Mitra, Devashish & Chinoy, Sajjid, 2001. "Trade liberalization and labor demand elasticities: evidence from Turkey," Journal of International Economics, Elsevier, vol. 55(2), pages 391-409, December.
  6. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  7. A. R. Kemal, 2005. "Skill Development in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 349-357.
  8. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  9. repec:iza:izadps:dp1084 is not listed on IDEAS
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Cited by:
  1. Ben Salha, Ousama, 2013. "Does economic globalization affect the level and volatility of labor demand by skill? New insights from the Tunisian manufacturing industries," Economic Systems, Elsevier, vol. 37(4), pages 572-597.

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