IDEAS home Printed from https://ideas.repec.org/a/pid/journl/v54y2015i3p197-214.html
   My bibliography  Save this article

Trade Shocks and Labour Adjustment: Evidence from Pakistan’s Manufacturing Industries

Author

Listed:
  • Javed Iqbal

    (School of Economics, Quaid-i-Azam University, Islamabad.)

  • Misbah Nosheen

    (Department of Economics, Hazara University, Mansehra)

  • Syed Nawab Haider Naqvi

    (Federal Urdu University of Arts, Science and Technology, Islamabad.)

Abstract

The present study is an attempt to explore the impact of trade liberalisation on employment and wages of production and non-production workers in large scale manufacturing industries of Pakistan. We use a sample of 18 industrial establishments with a time series data covering a period 1970-71 to 2005-06. In order to account for endogeniety problem, this study uses the Generalised Method of Moments (GMM). The study comes up with the findings that trade liberalisation has significantly negative impact on employment of both production and non-production workers. On the other hand, trade liberalisation has a significantly positive impact on wages of production workers, but it has no significant impact on wages of non-production workers. The negative impact of trade is attributed to the high protection given to most of the inefficient industries in the post liberalisation period. On the other hand, reduction in non-production worker employment is not unexpected as in case of developing country like Pakistan, trade liberalisation is supposed to displace capital intensive industries that employ most of the non-production (skilled) workers.

Suggested Citation

  • Javed Iqbal & Misbah Nosheen & Syed Nawab Haider Naqvi, 2015. "Trade Shocks and Labour Adjustment: Evidence from Pakistan’s Manufacturing Industries," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 54(3), pages 197-214.
    • Handle: RePEc:pid:journl:v:54:y:2015:i:3:p:197-214
    as

    Download full text from publisher

    File URL: http://www.pide.org.pk/pdf/PDR/2015/Volume3/197-214.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2003. "Instrumental variables and GMM: Estimation and testing," Stata Journal, StataCorp LP, vol. 3(1), pages 1-31, March.
    2. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," The World Bank Economic Review, World Bank, vol. 11(1), pages 33-57, January.
    3. Elhanan Helpman & Oleg Itskhoki & Marc-Andreas Muendler & Stephen J. Redding, 2017. "Trade and Inequality: From Theory to Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 357-405.
    4. Slaughter, Matthew J., 2001. "International trade and labor-demand elasticities," Journal of International Economics, Elsevier, vol. 54(1), pages 27-56, June.
    5. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    6. Tran Nhuan KIEN & Yoon HEO, 2009. "Impacts Of Trade Liberalization On Employment In Vietnam: A System Generalized Method Of Moments Estimation," The Developing Economies, Institute of Developing Economies, vol. 47(1), pages 81-103, March.
    7. Robert Z. Lawrence & Lawrence Edward, 2010. "US Trade and Wages: The Misleading Implications of Conventional Trade Theory," Working Paper Series WP10-9, Peterson Institute for International Economics.
    8. Revenga, Ana, 1997. "Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 20-43, July.
    9. Milner, Chris & Wright, Peter, 1998. "Modelling Labour Market Adjustment to Trade Liberalisation in an Industrialising Economy," Economic Journal, Royal Economic Society, vol. 108(447), pages 509-528, March.
    10. Pravin Krishna & Jennifer P. Poole & Mine Zeynep Senses, 2012. "Trade, Labor Market Frictions, and Residual Wage Inequality across Worker Groups," American Economic Review, American Economic Association, vol. 102(3), pages 417-423, May.
    11. Rashmi Banga, 2005. "Liberalisation and wage inequality in India," Indian Council for Research on International Economic Relations, New Delhi Working Papers 156, Indian Council for Research on International Economic Relations, New Delhi, India.
    12. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2007. "Trade Reforms, Labor Regulations, and Labor-Demand Elasticities: Empirical Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 466-481, August.
    13. Robbins, Donald J., 1996. "Hos Hits Facts: Facts Win Evidence On Trade And Wages In The Developing World," Harvard Institute for International Development (HIID) Papers 294374, Harvard University, Kennedy School of Government.
    14. Eugene Beaulieu, 2000. "The Canada-U.S. Free Trade Agreement and labour market adjustment in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 33(2), pages 540-563, May.
    15. Eugene Beaulieu & Vivek Dehejia & Hazrat-Omar Zakhilwal, 2004. "International Trade, Labour Turnover, and the Wage Premium: Testing the Bhagwati-Dehejia Hypothesis for Canada," CESifo Working Paper Series 1149, CESifo.
    16. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    17. repec:oup:restud:v:84:y::i:1:p:357-405. is not listed on IDEAS
    18. Ashfaque H. Khan, 1998. "The Experience of Trade Liberalisation in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 37(4), pages 661-685.
    19. Rashmi Banga, 2007. "Liberalisation and Wage Inequality In India," Working Papers id:805, eSocialSciences.
    20. Rana Hasan, 2001. "The Impact of Trade and Labor Market Regulations on Employment and Wages: Evidence from Developing Countries," Economics Study Area Working Papers 32, East-West Center, Economics Study Area.
    21. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    22. Donald J. Robbins, 1996. "Evidence on Trade and Wages in the Developing World," OECD Development Centre Working Papers 119, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Njikam, Ousmanou, 2016. "Trade liberalization, labor market regulations and labor demand in Cameroon," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 525-541.
    2. Ilina Srour & Erol Taymaz & Marco Vivarelli, 2014. "Globalization, Technology and Skills: Evidence from Turkish Longitudinal Microdata," ERC Working Papers 1405, ERC - Economic Research Center, Middle East Technical University, revised Jun 2014.
    3. Elena Meschi & Erol Taymaz & Marco Vivarelli, 2016. "Globalization, technological change and labor demand: a firm-level analysis for Turkey," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(4), pages 655-680, November.
    4. Ilina Srour & Marco Vivarelli & Erol Taymaz, 2013. "Technological Change and Skill-based Employment Disparities: Evidence from Turkey," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1393, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    5. Srour, Ilina & Taymaz, Erol & Vivarelli, Marco, 2013. "Skill-Biased Technological Change and Skill-Enhancing Trade in Turkey: Evidence from Longitudinal Microdata," IZA Discussion Papers 7320, Institute of Labor Economics (IZA).
    6. Karishma Banga, 2017. "Impact of Linking into Global Value Chains on Indian Employment," Working Papers 1701, Council on Economic Policies.
    7. Julien Gourdon, 2011. "Wage inequality in developing countries: South–South trade matters," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 58(4), pages 359-383, December.
    8. Mouelhi, Rim Ben Ayed, 2007. "Impact of trade liberalization on firm's labour demand by skill: The case of Tunisian manufacturing," Labour Economics, Elsevier, vol. 14(3), pages 539-563, June.
    9. Hoekman & Bernard & Winters, L. Alan, 2005. "Trade and employment : stylized facts and research findings," Policy Research Working Paper Series 3676, The World Bank.
    10. Kölling, Arnd & Mertens, Antje, 2020. "Exporting behavior and the demand for skills in German establishments," Working Papers 97, Berlin School of Economics and Law, Institute of Management Berlin (IMB).
    11. Lichter, Andreas & Peichl, Andreas & Siegloch, Sebastian, 2015. "The own-wage elasticity of labor demand: A meta-regression analysis," European Economic Review, Elsevier, vol. 80(C), pages 94-119.
    12. Bushra Yasmin & Aliya H. Khan, 2011. "Trade Openness: New Evidence for Labor-Demand Elasticity in Pakistan's Manufacturing Sector," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(2), pages 55-85, Jul-Dec.
    13. Johannes Fedderke & Yongcheol Shin & Prabhat Vaze, 2003. "Trade, Technology and Wage Inequality in the South African Manufacturing Sectors," Edinburgh School of Economics Discussion Paper Series 106, Edinburgh School of Economics, University of Edinburgh.
    14. Jauhari, Azmafazilah Binti & khalifah, noor, 2018. "Trade Linkages and Skill Demand: Empirical Evidence for the Malaysian Electrical and Electronics Industries," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(1), pages 89-103.
    15. Tran Nhuan KIEN & Yoon HEO, 2009. "Impacts Of Trade Liberalization On Employment In Vietnam: A System Generalized Method Of Moments Estimation," The Developing Economies, Institute of Developing Economies, vol. 47(1), pages 81-103, March.
    16. Pan, Lijun & Zhou, Yu, 2013. "International factor mobility, environmental pollution and skilled–unskilled wage inequality in developing countries," Economic Modelling, Elsevier, vol. 33(C), pages 826-831.
    17. Tadadjeu, Sosson & Njangang, Henri & Asongu, Simplice A. & Kamguia, Brice, 2023. "Natural resources, child mortality and governance quality in African countries," Resources Policy, Elsevier, vol. 83(C).
    18. Diego E. Vacaflores, 2011. "Was Latin America Correct In Relying In Foreign Direct Investment To Improve Employment Rates?," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 11(2).
    19. Davide Consoli & Francesco Vona & Francesco Rentocchini, 2016. "That was then, this is now: skills and routinization in the 2000s," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 25(5), pages 847-866.
    20. Jaanika Merikull & Tairi Room, "undated". "Are foreign-owned firms different ? Comparision of employment volatility and elasticity of labour demand," Bank of Estonia Working Papers wp2014-1, Bank of Estonia.

    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:pid:journl:v:54:y:2015:i:3:p:197-214. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Khurram Iqbal (email available below). General contact details of provider: https://edirc.repec.org/data/pideipk.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.