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Trade liberalization, firm performance, and labor market outcomes in the developing world : what can we learn from micro-level data?

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  • Epifani, Paolo

Abstract

reviews the micro-level evidence on the effects of trade and investment liberalization in the developing world. He focuses, in particular, on the effects of the 1991 trade reform in India since it provides an excellent controlled experiment in which the effects of a drastic trade regime change can be measured. His main findings are: 1) There is evidence of trade-induced productivity gains (in this respect, however, India is an exception. 2) These gains mainly stem from intra-industry reallocation of resources among firms with different productivity levels. 3) The gains are larger in import-competing sectors. 4) There is no evidence of significant scale efficiency gains. Unilateral trade liberalization is often associated with a reduced scale efficiency. 5) There is evidence of a pro-competitive effect of trade liberalization. 6) There is no evidence either of learning-by-exporting effects or of beneficial spillover effects from foreign-owned to local firms active in the same sectors. 7) There is evidence, however, of positive vertical spillovers from foreign direct investment. 8) There is evidence of skill upgrading induced either by technology imports or by trade-induced reallocations of market shares in favor of plants with higher skill-intensity. 9) There is no evidence of trade-induced increases in labor demand elasticities. But direct evidence suggests that trade exposure raises wage volatility. 10) There isno evidence of substantial employment contraction in import-competing sectors.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3063.

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Date of creation: 31 May 2003
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Handle: RePEc:wbk:wbrwps:3063

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Keywords: Environmental Economics&Policies; Payment Systems&Infrastructure; Economic Theory&Research; Labor Policies; Trade Policy; Trade Policy; Environmental Economics&Policies; Economic Theory&Research; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Trade and Regional Integration;

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Cited by:
  1. Gunjan Sharma, 2006. "Competing or Collaborating Siblings? Industrial and Trade Policies in India," Working Papers, Department of Economics, University of Missouri 0610, Department of Economics, University of Missouri.
  2. Pierre, Gaelle & Scarpetta, Stefano, 2007. "How labor market policies can combine workers'protection with job creation : a partial review of some key issues and policy options," Social Protection Discussion Papers 41439, The World Bank.
  3. Aldaba, Rafaelita M., 2010. "Does Trade Protection Improve Firm Productivity? Evidence from Philippine Micro Data," Discussion Papers DP 2010-32, Philippine Institute for Development Studies.
  4. Puja Vasudeva Dutta, 2007. "Trade Protection and Inter-Industry Wages in India," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 60(2), pages 268-286, January.
  5. Pierre, Gaelle & Scarpetta, Stefano, 2004. "Employment regulations through the eyes of employers - do they matter and how do firms respond to them?," Policy Research Working Paper Series 3463, The World Bank.
  6. Sivadasan, Jagadeesh & Slemrod, Joel, 2008. "Tax law changes, income-shifting and measured wage inequality: Evidence from India," Journal of Public Economics, Elsevier, Elsevier, vol. 92(10-11), pages 2199-2224, October.
  7. Petia Topalova, 2004. "Trade Liberalization and Firm Productivity," IMF Working Papers 04/28, International Monetary Fund.
  8. Meschi, Elena & Vivarelli, Marco, 2009. "Trade and Income Inequality in Developing Countries," World Development, Elsevier, Elsevier, vol. 37(2), pages 287-302, February.
  9. Gibson, Bill, 2005. "The transition to a globalized economy: Poverty, human capital and the informal sector in a structuralist CGE model," Journal of Development Economics, Elsevier, Elsevier, vol. 78(1), pages 60-94, October.
  10. Elena Meschi & Erol Taymaz & Marco Vivarelli, 2009. "Trade, Technology and Skills: Evidence from Turkish Microdata," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2009-097, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  11. Kamil Yılmaz & Şule Özler, 2007. "Productivity response to reduction in trade barriers: Evidence from Turkish manufacturing plants," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 0704, Koc University-TUSIAD Economic Research Forum.
  12. Meschi, Elena & Vivarelli, Marco, 2007. "Globalization and Income Inequality," IZA Discussion Papers 2958, Institute for the Study of Labor (IZA).
  13. Boubakri, Narjess & Cosset, Jean-Claude & Guedhami, Omrane, 2005. "Liberalization, corporate governance and the performance of privatized firms in developing countries," Journal of Corporate Finance, Elsevier, Elsevier, vol. 11(5), pages 767-790, October.

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