Trade Liberalization, Firm Performance and Labour Market Outcomes in the Developing World. What Can We Learn from Micro-Level Data?

University of Bocconi Development Studies Working Paper No. 172

64 Pages Posted: 4 Apr 2003

See all articles by Paolo Epifani

Paolo Epifani

Bocconi University - Department of Economics

Date Written: December 2002

Abstract

We review the micro-level evidence on the effects of trade and investment liberalization in the developing world. We focus, 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. The main findings can be summarized as follows. 1) There is evidence of trade-induced productivity gains (in this respect, however, India is something of an exception); 2) These gains mainly stem from the intra-industry reallocation of resources among firms with different productivity levels and: 3) they are larger in import competing sectors; 4) There is no evidence of significant scale efficiency gains. Indeed, 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; 7) 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; 8) There is no evidence of trade-induced increases in labor demand elasticities. Direct evidence suggests, however, that trade exposure raises wage volatility; 9) There is no evidence of substantial employment contraction in import competing sectors.

Keywords: Plant-level evidence, firm heterogeneity, productivity growth, scale efficiency, technology transfer, wage inequality, wage volatility, labour demand elasticity, India

JEL Classification: F1

Suggested Citation

Epifani, Paolo, Trade Liberalization, Firm Performance and Labour Market Outcomes in the Developing World. What Can We Learn from Micro-Level Data? (December 2002). University of Bocconi Development Studies Working Paper No. 172, Available at SSRN: https://ssrn.com/abstract=381860 or http://dx.doi.org/10.2139/ssrn.381860

Paolo Epifani (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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