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rp2008-108

rp2008-108

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Published by: Shivali Grover on Aug 26, 2010
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UNU-WIDER 20081 International Trade Programme at Center for the Implementation of Public Policies Promoting Equityand Growth (CIPPEC), Buenos Aires, Argentina; e-mail: lcastro@cippec.org; 2 Center for theImplementation of Public Policies Promoting Equity and Growth (CIPPEC), e-mail:dsaslavsky@cippec.orgThis study has been prepared within the UNU-WIDER project on Southern Engines of Global Growth,co-directed by Amelia U. Santos-Paulino and Guanghua Wan.UNU-WIDER gratefully acknowledges the financial contributions to the research programme by thegovernments of Denmark (Royal Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs),Norway (Royal Ministry of Foreign Affairs), Sweden (Swedish International Development CooperationAgency—Sida) and the United Kingdom (Department for International Development).ISSN 1810-2611 ISBN 978-92-9230-166-8
Research Paper No. 2008/108
Trade with China and India andManufacturing Labour Demandin Argentina
Lucio Castro
1
and Daniel Saslavsky
2
 
December 2008
Abstract
For many in Latin America, the increasing participation of China and India ininternational markets is seen as a looming shadow of two ‘mighty giants’ on theregion’s manufacturing sector. Are they really mighty giants when it comes to theirimpact on manufacturing employment? This paper attempts to answer this question byestimating the effects of trade with China and India on Argentina’s industrialemployment. We use a dynamic econometric model and industry level data to estimatethe effects of trade with China and India on the level of employment in Argentina’smanufacturing sector. Results suggest that trade with China and India only had a smallnegative effect on industrial employment, even during the swift trade liberalization of the 1990s.Keywords: China, Latin America, trade, import competition, trade and labour marketinteractions, employmentJEL classification: F14, F15, F16, F17, L60
 
 
The World Institute for Development Economics Research (WIDER) wasestablished by the United Nations University (UNU) as its first research and training centre and started work in Helsinki, Finland in 1985. The Instituteundertakes applied research and policy analysis on structural changesaffecting the developing and transitional economies, provides a forum for theadvocacy of policies leading to robust, equitable and environmentallysustainable growth, and promotes capacity strengthening and training in the field of economic and social policy making. Work is carried out by staff researchers and visiting scholars in Helsinki and through networks of collaborating scholars and institutions around the world.
www.wider.unu.edu publications@wider.unu.edu
UNU World Institute for Development Economics Research (UNU-WIDER)Katajanokanlaituri 6 B, 00160 Helsinki, Finland
 
Typescript prepared by Janis Vehmaan-Kreula at UNU-WIDERThe views expressed in this publication are those of the author(s). Publication does not implyendorsement by the Institute or the United Nations University, nor by the programme/project sponsors, of any of the views expressed.
The usual disclaimer applies. The opinions presented here are of the authors and thus donot necessarily represent the official position of the institutions they belong to.Tables and Figures appear at the end of the paper.
 
 1
‘China and India are seen by many as two mighty giants threatening the jobs of themanufacturing industry’
 La Nación
Newspaper, Buenos AiresMarch 2005
1 Introduction
For many in Latin America, the increasing participation of China and India ininternational markets is seen as a looming shadow of two ‘mighty giants’ on theregion’s industrial sector, and one of the major causes behind the significant reductionof employment in the manufacturing industry in the last decade. Are these claims justified? Are China and India, the ‘mighty giants’ driving the secular fall inmanufacturing jobs in Latin America?This paper attempts to provide answers to these questions with a focus on Argentina,which experienced a 31 per cent decline in industrial employment over the last decade,while the share of imports from China and India increased six fold. We apply a dynamiceconometric model where labour demand in each industry is a function of wages, thecapital stock, prices and productivity. The last two (prices and productivity) are afunction of import and export penetration, and will allow us to identify the impact thattrade with China and India is having through these two channels on labour demand inArgentina’s manufacturing sector.In principle, trade should affect the level of employment across and within sectors.Empirical research on the impact of trade on employment has found little evidenceeither way, particularly in developing countries.
1
Using plant level data for Morocco,Currie and Harrison (1997) find only a small impact of trade liberalization on the levelof employment. Revenga (1997) did not find any statistically significant relationbetween the level of employment and tariffs liberalization in the case of Mexico.Márquez and Pages-Serra (1998) examined the relationship between trade liberalizationand employment in Latin America and the Caribbean (LAC) and could not find anysubstantial effect. A comprehensive study by the IADB (2004), using household surveydata for 10 LAC countries, did not find a statistically significant association between thetwo phenomena. De Ferranti et al. (2003) confirm this result for several countries inLAC. In a similar study, that also contemplates the effects of exchange rateappreciations, Haltiwanger et al. (2004) did not find robust results on the relationshipbetween trade liberalization and changes in net employment in the region. In their paperon the impact of trade liberalization on income distribution in Colombia, Attanasio et al.(2004) found no evidence of labour reallocation across sectors. Similarly smallemployment effects in Latin America are reported in Levinsohn (1999) for Chile,Moreira and Najberg (2000) for Brazil and Gandelman et al. (2005) for Uruguay.
2
 
1See Hoekman and Winters (2005) for a comprehensive survey on the recent empirical evidence on theeffects of trade on employment.2See Goldberg and Pavcnik (2004) for a survey of empirical evindence on the effects of trade onpoverty and inequality.

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