Claire H. Hollweg

Seeking Shared Prosperity Through Trade

Increasing the trade integration of developing countries can make a vital contribution to boosting shared prosperity, but it also exposes producers and consumers to exogenous shocks that alter relative prices, sometimes positively and sometimes negatively. This paper discusses the short-run effects of trade-related shocks on households to capture the potential welfare impact on the poor. The discussion explores the channels through which trade shocks are transmitted to households in the bottom of the income distribution, namely through consumption, household production, and market-based labor activities. The degree to which price shocks are passed through from borders to point of sale is a key determinant of the gains from trade and the ultimate welfare impact. Trade changes in agriculture directly affect households through their consumption basket. Lower agricultural prices reduce the cost of consumables, but these welfare gains may be offset by lower earnings for households that produce these same goods. Poorer households tend to be net consumers of agricultural products, suggesting a net welfare gain, but agricultural wage workers could suffer from wage cuts. Because poorer households tend to consume relatively fewer nonagricultural products, that is nonessentials, any trade-related shocks to prices of nonagricultural product are likely to be transmitted via labor channels. Despite significant evidence that nonagricultural trade reform ultimately leads to job creation and enhanced productivity, the short-run effects can be mixed. The costs incurred by workers to transition to new jobs slow the adjustment of the economy to a new steady state. Labor mobility costs, which tend to be higher in developing countries and for unskilled workers, reduce the potential gains to trade by diverting labor market adjustment from its most efficient path.

Trade in Global Value Chains : An Assessment of Labor Market Implications

This paper draws on unique datasets – the World Bank Labor Content of Exports (LACEX) and Export Value Added (EVA) databases – to explore how different varieties of trade integration through global value chains (GVCs) may result in different outcomes in the labor market. It highlights five key findings: (i) The net association between trade integration and labor demand is positive, suggesting that while high shares of GVC integration is negatively correlated with labor demand, this is overcome by the larger aggregate output that results; (ii) Exporting (including intermediates) shows a positive correlation with the labor share in the direct export sector, while buying in GVCs is associated with positive returns to labor in the supplying sectors; (iii) Greater use of foreign inputs as a buying-side GVC integrator has overall benefits in terms of the returns to labor (relative to capital), but is likely to be associated with greater polarization of those returns, with skilled workers benefiting over unskilled; (iv) While results generally hold across sectors and income levels, we find evidence of a U-shaped relationship, whereby low and (especially) high income countries appear to have a stronger association between trade integration and labor market outcomes relative to middle income countries; and, (v) trade policy appears to play a significant role in mediating the relationship between trade and labor demand, while the mediating role of labor policy varies across the trade.

Vietnam at a crossroads : engaging in the next generation of global value chains

Vietnam has emerged as an Asian manufacturing powerhouse, carving out a role for itself within global value chains (GVCs). By specializing in assembly functions on behalf of primarily foreign firms, Vietnam has markedly increased its domestic value added, as reflected by its gross exports, which have grown by 16.6 percent annually between 1995 and 2011. This export-oriented development strategy has created jobs, propelled economic growth, and reduced poverty. As successful as Vietnam has been, within the context of GVCs, its specialization has been in low value-added,end-production activities. Its challenge is to move up the value chain into higher value-added functions. Even more ambitious would be to grasp the opportunity to become an originator of products by nurturing a nascent set of domestic firms that have the potential to carve out an “invented in Vietnam” niche in local, regional, and global markets. In short, Vietnam is at a crossroads. It can continue to specialize in low value-added assembly functions, withindustrialization occurring in enclaves with little connection to the broader economy or society; or it can leverage the current wave of growth to diversify and move up the chain into higher value-added functions. Success will require Vietnam’s policy makers to view the processes of development differently and to take new realities of the global economy more fully into account.Vietnam at a Crossroads: Engaging in the Next Generation of Global Value Chains identifies policies and targeted interventions that will drive development by leveraging GVC participation while also taking into account major trade policy shifts and rapid technological advances. Readers will gain a strong understanding of Vietnam’s current and potential engagement with GVCs and will learn about strategic policy tools that can help developing countries achieve economic prosperity in the context of compressed development. Its findings will be of particular interest to policy makers, development practitioners, and academics.

Migrating to Opportunity

The movement of people in Southeast Asia is an issue of increasing importance. Workers move throughout Southeast Asia in search of economic opportunities. This book highlights how mobility affects the well-being of workers, the constraints workers face when migrating for better opportunities, and the solutions to ease these constraints. The diversity of economic development in Southeast Asia means that there are ample opportunities for workers to seek out better jobs that pay higher wages. The book documents why workers are not always able to take advantage of these opportunities, what is lost when they are not able to take advantage of them, and potential policies that will expand their access to them. The report is structured as follows: part one gives migration and regional integration in Southeast Asia; and part two presents migration policy in Southeast Asia.

The labor content of exports database

This paper develops a novel methodology to measure the quantity of jobs and value of wages embodied in exports for a large number of countries and sectors for intermittent years between 1995 and 2011. The resulting Labor Content of Exports database allows the examination of the direct contribution of labor to exports as well as the indirect contribution via other sectors of the economy for skilled and unskilled labor. The analysis of the new data sets documents several new findings. First, the global share of labor value added in exports has been declining globally since 1995, but it has increased in low-income countries. Second, in line with the standard Hecksher-Ohlin trade model, the composition of labor directly contained in exports is skewed toward skilled labor in high-income countries relative to developing countries. However, that is not the case for the indirect labor content of exports. Third, manufacturing exports are a key source of labor demand in other sectors, especially in middle- and low-income countries. And the majority of the indirect demand for labor spurred by exports is in services sectors, whose workers are the largest beneficiaries of exporting activities globally. Fourth, differences in the labor value added in exports share across developing countries appears to be driven more by differences in the composition of exports rather than in sector labor intensities. Finally, average wages typically increase rapidly enough with the process of economic development to more than compensate the loss in jobs per unit of exports. The paper also includes the necessary information to build the Labor Content of Exports database from the original raw data, including stata do-files and matlab files, as well as descriptions of the variables in the data set.