IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v108y2018i7p1899-1941.html
   My bibliography  Save this article

Export Markets and Labor Allocation in a Low-Income Country

Author

Listed:
  • Brian McCaig
  • Nina Pavcnik

Abstract

We study the effects of a positive export shock on labor allocation between the informal, microenterprise sector and the formal firm sector in a low-income country. The United States-Vietnam Bilateral Trade Agreement led to large reductions in US tariffs on Vietnamese exports. We find that the share of manufacturing workers in Vietnam in the formal sector increased by 5 percentage points in response to the US tariff reductions. The reallocation was greater for workers in more internationally integrated provinces and for younger cohorts. We estimate the gap in labor productivity within manufacturing across the informal and formal sectors. This gap and the aggregate labor productivity gain from the export-induced reallocation of workers across the two sectors are reduced when we account for worker heterogeneity, measurement error, and differences in labor intensity of production.

Suggested Citation

  • Brian McCaig & Nina Pavcnik, 2018. "Export Markets and Labor Allocation in a Low-Income Country," American Economic Review, American Economic Association, vol. 108(7), pages 1899-1941, July.
  • Handle: RePEc:aea:aecrev:v:108:y:2018:i:7:p:1899-1941
    Note: DOI: 10.1257/aer.20141096
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/aer.20141096
    Download Restriction: no

    File URL: https://www.aeaweb.org/articles/attachments?retrieve=lvTbbaHrMwgoln4Eo4MwO2IfzymxlilG
    Download Restriction: no

    File URL: https://www.aeaweb.org/articles/attachments?retrieve=RrXhD9dVs0FcupkRoAyWPJomSU5jn4pZ
    Download Restriction: no

    File URL: https://www.aeaweb.org/articles/attachments?retrieve=0bFSuw50IWvwVGFtNHgLrFMyKyOwV5C2
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Monika Mrázová & J Peter Neary, 2019. "Selection Effects with Heterogeneous Firms," Journal of the European Economic Association, European Economic Association, vol. 17(4), pages 1294-1334.
    2. Rafael La Porta & Andrei Shleifer, 2014. "Informality and Development," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 109-126, Summer.
    3. Diego Restuccia & Richard Rogerson, 2008. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 707-720, October.
    4. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 489-530.
    5. Marcouiller, Douglas & Ruiz de Castilla, Veronica & Woodruff, Christopher, 1997. "Formal Measures of the Informal-Sector Wage Gap in Mexico, El Salvador, and Peru," Economic Development and Cultural Change, University of Chicago Press, vol. 45(2), pages 367-392, January.
    6. Petia Topalova, 2010. "Factor Immobility and Regional Impacts of Trade Liberalization: Evidence on Poverty from India," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 1-41, October.
    7. Wacziarg, Romain & Wallack, Jessica Seddon, 2004. "Trade liberalization and intersectoral labor movements," Journal of International Economics, Elsevier, vol. 64(2), pages 411-439, December.
    8. S.K. Bhutani, 2009. "China and India," India Quarterly: A Journal of International Affairs, , vol. 65(4), pages 383-391, October.
    9. Petia Topalova, 2007. "Trade Liberalization, Poverty and Inequality: Evidence from Indian Districts," NBER Chapters, in: Globalization and Poverty, pages 291-336, National Bureau of Economic Research, Inc.
    10. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 39-82, March.
    11. Ann Harrison & John McLaren & Margaret McMillan, 2011. "Recent Perspectives on Trade and Inequality," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 261-289, September.
    12. Margaret S. McMillan & Dani Rodrik, 2011. "Globalization, Structural Change and Productivity Growth," NBER Working Papers 17143, National Bureau of Economic Research, Inc.
    13. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2007. "Comparative Advantage and Heterogeneous Firms," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 31-66.
    14. Muendler, Marc-Andreas, 2007. "Labor Reallocation in Response to Trade Reform," University of California at San Diego, Economics Working Paper Series qt3cm38535, Department of Economics, UC San Diego.
    15. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    16. Irene Brambilla & Daniel Lederman & Guido Porto, 2012. "Exports, Export Destinations, and Skills," American Economic Review, American Economic Association, vol. 102(7), pages 3406-3438, December.
    17. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
    18. Rafael Dix‐Carneiro, 2014. "Trade Liberalization and Labor Market Dynamics," Econometrica, Econometric Society, vol. 82(3), pages 825-885, May.
    19. Irene Brambilla & Guido Porto & Alessandro Tarozzi, 2012. "Adjusting to Trade Policy: Evidence from U.S. Antidumping Duties on Vietnamese Catfish," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 304-319, February.
    20. Paz, Lourenço S., 2014. "The impacts of trade liberalization on informal labor markets: A theoretical and empirical evaluation of the Brazilian case," Journal of International Economics, Elsevier, vol. 92(2), pages 330-348.
    21. Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, vol. 72(2), pages 463-496, December.
    22. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    23. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 275-363.
    24. Brian, McCaig, 2011. "Exporting out of poverty: Provincial poverty in Vietnam and U.S. market access," Journal of International Economics, Elsevier, vol. 85(1), pages 102-113, September.
    25. Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, vol. 101(1), pages 304-340, February.
    26. Chang-Tai Hsieh & Benjamin A. Olken, 2014. "The Missing "Missing Middle"," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 89-108, Summer.
    27. Attanasio, Orazio & Goldberg, Pinelopi K. & Pavcnik, Nina, 2004. "Trade reforms and wage inequality in Colombia," Journal of Development Economics, Elsevier, vol. 74(2), pages 331-366, August.
    28. Fukase, Emiko, 2013. "Export liberalization, job creation and the skill premium : evidence from the U.S.-Vietnam bilateral trade agreement," Policy Research Working Paper Series 6419, The World Bank.
    29. Gordon H. Hanson, 2012. "The Rise of Middle Kingdoms: Emerging Economies in Global Trade," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 41-64, Spring.
    30. Nataraj, Shanthi, 2011. "The impact of trade liberalization on productivity: Evidence from India's formal and informal manufacturing sectors," Journal of International Economics, Elsevier, vol. 85(2), pages 292-301.
    31. Harrison, Ann & Hanson, Gordon, 1999. "Who gains from trade reform? Some remaining puzzles," Journal of Development Economics, Elsevier, vol. 59(1), pages 125-154, June.
    32. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    33. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    34. repec:hrv:faseco:33078210 is not listed on IDEAS
    35. Hanson, Gordon H., 1996. "Economic integration, intraindustry trade, and frontier regions," European Economic Review, Elsevier, vol. 40(3-5), pages 941-949, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Export Markets and Labor Allocation in a Low-Income Country (AER 2018) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:108:y:2018:i:7:p:1899-1941. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.