Globalization and labor demand elasticities: Do trading partners matter

Syeda Tamkeen Fatima

The Journal of International Trade & Economic Development, 2021, vol. 30, issue 3, 365-383

Abstract: This paper uses industrial level data across 41 developing and emerging economies over the period of 1993–2013, to analyze the impact of globalization on the elasticity of demand for labor. The use of both import penetration ratios and export intensity in our model allows for assessment of relative effectiveness of exports vis à vis imports in influencing the labor elasticities. Furthermore, the disintegration of exports and imports according to their trading partners helps explore a novel source of heterogeneity in labor elasticity originating as a result of trading relationship with developed and developing world. Using system-GMM approach, our results reveal that both exports and imports make labor demand more elastic, with imports leaving the labor demand more vulnerable to wage changes. Trading with developing countries renders labor demand more elastic and that too with respect to low-tech or labor intensive products, while trading with developed countries poses no effect. Overall, the results point towards developing countries encouraging greater exporting and importing ties with developed world to ease its impact on the elasticity of demand for labor. However, trading with developing countries need not be suspended rather labor protection programs need to be in place to counter any consequent adverse effects.

Date: 2021
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DOI: 10.1080/09638199.2020.1852302

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