International Trade and Employment: Theory and Evidence from Korean Firms

Priyaranjan Jha, Jae Lee (), Yang Liang () and Devashish Mitra ()
Additional contact information
Jae Lee: KIET
Yang Liang: San Diego State University
Authors registered in the RePEc Author Service: Yang Liang and Yang Liang

No 192002, Working Papers from University of California-Irvine, Department of Economics

Abstract: We extend the small country trade model with firm heterogeneity (Demidova and Rodriguez-Clare, 2013) to incorporate offshoring (along with final goods trade). We derive the firm-level employment implications of output and input trade and trade costs to provide a guide for our empirical work using Korean firm-level data for the period 2006-2016. A key theoretical result is that the impact of a change in offshoring cost on employment depends crucially on the net substitutability between inputs where net substitutability is the difference between the elasticities of input substitution and output substitution. Empirically we find that a decrease in the input trade cost reduces employment and the impact is stronger the greater the net substitutability between inputs. Exporting almost always leads to higher employment. Our 2SLS results with firm-level imports (in place of trade costs) do not contradict our results with trade costs. However, using propensity score matching, we find that being an importer, on average, is associated with greater employment, with the magnitude of this positive employment effect being greater for exporting firms and in industries with lower net substitutability among inputs.

Keywords: Offshoring; Employment; South Korea; Trade Costs; Net Input Substitutability (search for similar items in EconPapers)
JEL-codes: F12 F14 F16 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2019-10
New Economics Papers: this item is included in nep-int and nep-ore
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https://faculty.sites.uci.edu/prjha/files/2019/11/JLLM_draft_v7.pdf (application/pdf)

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Journal Article: International trade and employment: Theory and evidence from Korean firms (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:192002

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