Journal of International Commerce, Economics and Policy

Vol. 14, No. 2 (2023) 2350009 (20 pages)

© World Scientific Publishing Company
DOI: 10.1142/S1793993323500096

Changing Trade Pattern, ICT, and Employment:

Evidence Across Countries

Manish Kumar Sharma* and Anwesha Aditya†

Department of Humanities and Social Sciences
Indian Institute of Technology Kharagpur
West Bengal 721302, India
*cadr.mksharma@gmail.com
†
anwesha.aditya@gmail.com

Published 31 March 2023

This paper examines the impact of export diversification and ICT on aggregate and skill-level
employment for a sample of 45 and 33 countries from 1990 to 2019 and 1995 to 2019 for
OECD & G20 country groups. GMM dynamic panel estimation results suggest that more
product-wise concentrated exports lead to new employment opportunities overall, but not
geographically diversified exports. Internet has substitution effects on overall employment
whereas mobile is insignificant. A greater product-wise diversified export structure expands
low-skill-intensive jobs, but greater geographical diversification expands high-skill-intensive
jobs. Internet use promotes high-skill-intensive jobs but displaces low-skilled workers. Mobile
is found to expand job opportunities for low-skilled workers.

Keywords: Export diversification; ICT; employment; skill composition.

JEL Classifications: F10, F16, F66, O33

1. Introduction
During the recovery of the world economy from the COVID-19 pandemic, it is time to
rethink the comparative advantage and specialization theories, as the countries can no
longer depend on a concentrated trade structure. The need for economic resilience,
stable export earnings, and generating enough employment opportunities has been one
of the key policy concerns of the developing countries. Shocks like the COVID-19
pandemic and the 2008 global recession have made these issues more important and
urgent to be addressed.
Besides the changing pattern of world trade, another important breakthrough over
the last few decades has been the technological advancement in Information and
Communication Technologies (henceforth, referred to as ICT). ICT enables fast ex-
change of data and information with almost negligible cost. Though the pandemic
profoundly impacted employment, ICT became a saving grace. Cheap communication
and digital exchange of data and information enabled the companies to work remotely
and round the clock.

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M. K. Sharma & A. Aditya

The developing countries trying to achieve maximum gains from globalization

should be careful about the shocks and uncertainties arising in the global economy and
aim to formulate policies to leverage the shocks. One way to achieve this would be by
diversifying their trade basket both in terms of product and destination. However, the
impact of trade structure on employment for the domestic economies is not explored
enough. Creating stable employment needs faster and stable economic growth, which
again depends on export diversification (ED). The empirical evidence reveals that
diversification of exports in high-value addition products leads to faster economic
growth, as in Aditya and Acharyya (2012, 2013), Agosin (2009), and Hesse (2008).
ED allows a country to spread its risks across countries and commodities and absorb
adverse terms of trade shocks as observed by Acemoglu and Zilibotti (1997).
The impact of ED on employment has largely remained neglected in the existing
literature, apart from the studies by Fosu et al. (2018) and Guneri and Erünlü (2020).
The two exceptions of which the first study is by Fosu et al. (2018), investigated the
issue with a focus on Africa and LDCs and compared it with the advanced countries
from 1991 to 2010. Its System GMM estimation results indicated that higher ED led to
higher employment, especially industrial employment, but decreased vulnerable em-
ployment. The second study by Guneri and Erünlü (2020) investigated the impacts of
trade liberalization and ED on the unemployment rate for OECD countries from 1991
to 2014. Their results show that freer trade and more diversification of export of
countries decreases unemployment.
Whereas the studies on the impact of diversification of exports on employment are
scanty, there are substantial studies available on the impact of ICT on demand for labor
and have mixed views. One important strand of the literature concludes that ICT
increases the demand for skilled workers and hence finds evidence for a skill-biased
technical change (SBTC) by replacing unskilled labor. Chun (2003), Bresnahan
et al. (1999), Berman et al. (1994), and Autor et al. (1998) found evidence of the same
in the US economy and argue that this SBTC has caused wage inequality there. Falk
and Seim (2001) found evidence of this phenomenon for the firms in Germany. The
SBTC is not only limited to developed countries. Berman et al. (1998) found evidence
for the same in some developing countries as well. Goaied and Sassi (2019) assess the
ICT–labor relationship for a sample of 167 developed and developing countries from
1990 to 2015. They found the aggregate impact of ICT adoption as saving labor in the
short term, and the same continued in the long run as well, resulting in a higher
induced structural unemployment.
Counter evidence is also available in the literature. Pantea et al. (2014) examined
firm-level data for services, manufacturing, and ICT-producing sectors for seven EU
countries during 2007–2010 and found that there was no proof of a negative rela-
tionship between employment growth and the intensity of ICT use. They pointed out
that ICT may benefit labor with ICT complementing skills and create more employ-
ment in such sectors, while conversely, some tasks may be automated due to ICT use
and may cause machine-labor substitutions. Hence, the combined effects are

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 Changing Trade Pattern, ICT, and Employment

statistically insignificant. Autor and Salomons (2018) analyzed 19 EU countries from

EU KLEMS data for 28 market industries from 1970 to 2007. They found that al-
though automation displaces labor in the industries in which it is created (termed as a
direct effect), these self-industry losses are changed into a reverse effect by indirect
gains in consumer industries and supported the increases in induced aggregate demand
for labor. Hence, they concluded that employment opportunities can expand at the
aggregate level due to technological progress.
Nevertheless, the interrelationships among these issues have been largely unex-
plored in the existing literature. In this context, this study seeks to answer the following
questions: how does ED (product- and destination-wise) affect employment, overall,
and for skilled and unskilled workers? Second, is ICT use labor replacing or aug-
menting? Furthermore, how is the effect different for skilled and unskilled workers,
if at all?
To the best of our knowledge, ours is the first attempt to discuss these two issues
together: ED and employment, and ICT and employment, after controlling for a wide
set of explanatory variables. Note that we have considered two dimensions of ED —
commodity-wise and destination-wise. We seek to answer the above questions across
countries belonging to different development strata. In particular, we employ a sample
of countries belonging to the G20 and OECD. It allows us to see if there is any
systematic difference in the association between ED, employment, and ICT across
country groups. Furthermore, we examine these issues for skilled and unskilled labor,
separately.
The main contribution of this paper is that we aim to bring out the importance of
setting trade policies for countries keeping in mind their differently skilled labor and
thus use the trade pattern accordingly in their favor to create more employment
opportunities. Secondly, to the best of our knowledge, it is the first study to emphasize
the impact of trade pattern in terms of ED on the skilled and unskilled workers. Third,
we also try to examine the importance of scale of production, fixed capital formation,
R&D, and liberalization of any country on overall employment and skilled and un-
skilled workers. Fourth, we aim to find out the impact of ICT in terms of voice
communication and internet use on skilled and unskilled employment, giving impor-
tant insights for both. Thus, the paper has touched upon an unexplored part of inter-
national trade and employment. The findings of the paper would prove to be very
helpful in designing appropriate policies for creating employment opportunities which
is the need of the hour during the post-pandemic recovery.
We carry out difference GMM dynamic panel estimation (Arellano and Bond, 1991)
for a sample of 45 countries from 1990 to 2019 after controlling for the impacts of
output, wage, physical capital formation, FDI, R&D, and trade liberalization. The
results suggest that specialization according to comparative advantage can lead to new
employment opportunities, whereas geographical diversification of exports does not
impact overall employment. Internet has substitution effects on overall employment
whereas mobile is insignificant.

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M. K. Sharma & A. Aditya

We further distinguish the impacts of ED and ICT for skilled and unskilled workers
for a sample of 33 countries from 1995 to 2019. Here, the reason for the reduction in
sample size is due to the availability of data on education-wise employment. Inter-
estingly, two types of ED (product- and destination-wise) and the ICT indicators
(mobile and internet) have opposite impacts on high-skilled and low-skilled workers. It
is found that a more product-wise diversified export structure creates more employ-
ment opportunities for unskilled workers.
For high-skilled workers, the results are polar opposite. Here, product-wise ED has
an insignificant impact. That means specialization according to comparative advantage
can be beneficial for the high-skilled workers. In contrast, higher geographical di-
versification of exports can strongly expand high-skill-intensive jobs. This can imply
that if developing countries focus on transitioning unskilled and semi-skilled workers
to highly skilled workers, more geographical diversification will make them more
employable.
Further, we find support in favor of skill-biased technological progress. Greater use
of mobile is complimentary for low-skill intensive jobs and insignificant for high-
skilled workers. On the other hand, better internet connectivity promotes high-skill-
intensive jobs but displaces low-skilled workers.
The paper is structured as follows: Section 2 outlines the model by describing the
variables, followed by the sample and data sources. Section 3 discusses the econo-
metric methodology. Section 4 presents the discussion and interpretation of the esti-
mation results. Section 5 concludes the study along with the major findings
summarized and mentioning the policy implications that emerge from this study.

2. Model Specification, List of Variables, Sample, and Data Sources

2.1. Model specification
To examine the effects of diversification of exports and ICT on the labor market, we
follow the existing empirical literature on the determinants of labor demand
(Hamermesh, 1993); Pantea et al. (2014). One caveat here is that we can derive the
labor demand function from the production function. In contrast, employment data is
the equilibrium level value, as we cannot obtain data for labor demand. Due to the
presence of natural and involuntary unemployment in most of the economies, we can
estimate the augmented labor demand function, as actual employment is constrained
by labor demand. We assume that profit-maximizing firms employ labor to minimize
the cost of production. Labor demand depends on the amount of output produced,
capital input and wage, and other factors like ICT use and ED. Hence, we estimate the
following standard conditional labor demand function on output, wage, capital (both
domestic capital formation and inflow of foreign capital), R&D, ICT and ED, and tariff.
Further, following Bresson et al. (1992) and Goaied and Sassi (2019), we adopt a
dynamic framework by including the lagged dependent variable as one of the ex-
planatory variables to capture adjustment to the equilibrium of labor demand.

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 Changing Trade Pattern, ICT, and Employment

Therefore, the labor demand follows the dynamic specification as follows:

Lit ¼ α0 þ β0 Wit þ β1 EDit þ β2 ICTit þ β3 Xit þ δi þ "it , ð1Þ
where “i” denotes a country, “t” denotes the time period, and “L” is the employment.
Note that we have two types of dependent variables — employment and skill
composition (in terms of education-wise employment). “ED” represents the measures
of ED (product- and market-wise) to be defined in the following section. “ICT”
denotes the use of ICT infrastructure in terms of mobile phone and internet use. “W” is
the wage or price of labor. “X” is the vector of country-year-specific other control
variables like output, R&D expenditure, FDI, GFCF, compensation (used as a proxy
for wages) and tariff.
The term “δi ” is an unobserved error which is country-specific and an effect in-
variant with time. For instance, the geographical effects and the institutions’ role
remain more or less the same over time, but change across countries. “"it ” is the
random error term that changes across both countries and time periods. It is assumed to
be not correlated over time.

2.2. List of variables

In this section, we discuss the main variables used in our study along with their definitions.
Dependent Variables

(1) Employment to population ratio (EMP) — Here, we use the ratio of employ-
ment to the population available for work. We normalize employment with pop-
ulation size as changes in the population are expected to affect changes in labor
supply and demand (Blancheton and Chhorn, 2019).
(2) Skill indicator: We consider the ratio of education-wise (both basic and advanced
education levels) employment to the population available for work. These two
extremes give unskilled and skilled employment shares. According to ILO,1 this is
the best available indicator of labor force skill levels.

Explanatory Variables

(1) Measures of ED:

(i) Commodity Concentration Index (CCI) — ED of a product basket can be
obtained through the (Hirschman, 1945) commodity concentration index
(CCI). CCI is defined as
" # 1=2
X 2
CCIk ¼ (αjk )
j ð2Þ
αjk ¼ Xjk =Xtk ,

1 https://ilostat.ilo.org/resources/concepts-and-definitions/description-employment-by-education/

2350009-5
M. K. Sharma & A. Aditya

where αjk ¼ Share of export of commodity-j to country-k’s total exports to rest

of the world.
It is calculated as the square root of the sum of squared product shares in a country’s
exports and is normalized between 0 and 1. The higher value of CCI represents the
less diversified is the export basket.
(ii) Geographical Concentration Index (GCI) — This Hirschman–Herfindahl
index indicates the dispersion of exports of a country according to destination.
It is calculated as the square root of the sum of squared destination shares in a
country’s exports and is normalized between 0 and 1. Hirschman Index of
Geographical or regional concentration can be calculated as
" # 1=2
X 2
GCIs ¼ (βsd )
d
ð3Þ
βsd ¼ Xsd =Xsw ,
where βsd ¼ Share of export of source country ‘s’ to destination country-d to
total exports of country “s” to the rest of the world “w”.
(2) ICT — Information technology enables the exchange of ideas, innovation, and
experimentation. ICT infrastructure has played a key role during the COVID-19
pandemic by enabling people to be connected at professional and personal levels
even during lockdown and travel restrictions-cum closure of public places. For
measuring ICT use, we have considered mobile and internet subscribers.
(i) Internet users (% of the population): We have considered the percentage of
population which have used internet (from any location) in the last three
months. It can be used via computer, mobile phone, personal digital assistant,
games machine, digital TV and so on. Internet is a worldwide public computer
network providing access to a number of communication services including the
World Wide Web and carries email, news, entertainment, and data files, irre-
spective of the device used. Access can be via a fixed or mobile network
(ITU, 2022). According to Kraut et al. (1999), Internet has been characterized
as a superhighway to information and as a high-tech extension of the home
telephone. However, internet still remains a luxury, and an estimated 37% of
the world’s population has still never used internet. Of the 2.9 billion still
offline, an estimated 96% live in developing countries (International Tele-
communication Union, 2021).
(ii) Mobile (Cellular) Subscriptions (Per 100 people): This includes the sub-
scriptions to mobile telephone service (public) using cellular technology,
which gives access to the public switched telephone network. It also includes
all mobile cellular subscriptions that offer voice communications. The indicator
includes and is divided into, the number of post-paid subscriptions, and the
number of active prepaid accounts (i.e., that have been used during the last

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 Changing Trade Pattern, ICT, and Employment

three months). It should be noted that it excludes mobile broadband sub-

scriptions via data cards or USB modems. The mobile cellular subscriptions
(per 100 people) indicator is derived by all mobile subscriptions divided by the
country’s population and multiplied by 100. In this era of digitization, mobile
communications have important impact in rural areas. The mobility, ease of
use, relatively low, and declining rollout costs of wireless technologies enable
them to reach rural populations with low levels of income and literacy.
ITU (2022) mentions that the next billion mobile subscribers will consist
mainly of the rural poor.

Thus, the main difference between both is that mobile represents the voice com-
munication part of ICT infrastructure while internet represents the access of internet
data through any device.
In addition, we have controlled for the impacts of other potential determinants of
employment as used in the existing literature. These include physical capital formation,
output, wage, R&D, FDI, and tariff. The definition and data sources of the respective
variables are given in Table A.6 in the Appendix.

2.3. Sample and data source

Our sample consists of 45 countries belonging to the G20 and OECD groups (refer to
Table A.4 in the Appendix) for the period 1990–2019. The data on the ratio of
employment to population available for work, GVA, wage or compensation, R&D,
FDI, and Gross Fixed capital formation are obtained from the World Development
Indicators database of the World Bank. The measures of the ED — CCI and GCI of
the countries are calculated with respect to the world market using the data from
WITS (World Integrated Trade Solution) from World Bank (SITC-1, four-digit
classification level) from 1990 to 2019. However, due to constraints on data avail-
ability on education-wise employment, the sample size for the skill level analysis
falls to 33 countries over the period 1995–2019 (see Table A.5 in Appendix for
country list).

3. Methodology
To examine the impacts of ED on employment, following labor economics and in-
ternational trade literature, we have used a dynamic framework by including lagged
dependent variable as one of the explanatory variables.
This dynamic framework helps avoid the specification bias, which may have
resulted in the absence of the lag of the dependent variable and gives a consistent
estimator of other parameters. It also helps in obtaining the persistent effect of em-
ployment. Hence, we use the following dynamic specification of Eq. (1):

Yit ¼ α0 þ β0 Yitk þ β1 Xit þ δi þ "it , ð4Þ

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M. K. Sharma & A. Aditya

where Yit ¼ Employment to population ratio in country “i” at time “t”, Yitk ¼ k years
of lag of Yit , Xit ¼ Set of independent variables as discussed earlier. “δi ” is a country-
specific, unobserved time-invariant effect and “"it ” is the random error term.
Note that using the lag of the dependent variable as one of the independent vari-
ables, affects the consistency of OLS and fixed-effect estimators. In the dynamic
specification [Eq. (1)], it is found that the unobserved effect correlated with the
explanatory variables. Thus, the cross-section estimator will become inconsistent.
Secondly, the fixed-effect estimators and cross-section regression cannot address the
problem of the endogeneity of the independent variables.
To avoid these problems, we have estimated the Generalized Method of Moments
(GMM) dynamic panel model given by Arellano and Bond (1991) and Arellano and
Bover (1995). In the estimation process, the first difference of the regression equation
is taken. It helps to eliminate the unobserved country-specific and time-invariant
effects, like geography, political regime, and the rule of law. Therefore, the omitted
variable bias is not there and essentially, the dynamic specification of the labor demand
in the first difference is estimated.
The endogeneity of independent variables due to the problem of inconsistency is
tackled using the benefits of the GMM dynamic panel method by using the lag of the
independent variables as valid instruments. To further tackle this issue, some speci-
fication tests are taken into account, as advised by Arellano and Bond (1991), Arellano
and Bover (1995), and Blundell and Bond (1998). The first one, the Sargan test, is for
over-identifying restrictions. It tests the aggregate validity of the instruments used in
the estimation. The second one is the AR(2) test, which tells if serial correlation in the
error term is absent. An inherent mechanism possibly finds the first-order serial cor-
relation with regressions in first differences, and the proper specification test would be
to go for a second-order serial correlation test.

4. Estimation Results
The difference GMM dynamic panel (Arellano and Bond, 1991) estimation results for
the sample countries, as reported in Tables A.1–A.3, reflect the effect of variations in
various explanatory variables like GCI, CCI, mobile, internet, and control variables
GFCF, LGVA, wage, R&D, FDI, and tariff on variations in employment. It may be
noted that these results do not bring out the impact of many omitted time-invariant
variables such as economic geography or institutional quality.
First, we discuss our main variables of interest — ICT (Information and Commu-
nication Technologies) and ED. The impact of ICT infrastructure differs for both the
overall employment and skill-wise employment. While mobile is insignificant, Internet
has substitution effects on overall employment. The impacts of these two ICT indi-
cators are just polar opposite. Greater use of mobile is found to be positively signif-
icant for low-skill intensive jobs, whereas better internet connection is required to
perform high-skill-intensive tasks. Greater Internet use is found to displace low-skilled

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 Changing Trade Pattern, ICT, and Employment

workers. Mobile use is insignificant for high-skilled workers. The possible explanation
for this can be that workers with basic education may lack the access as well as skill to
use the Internet (broadband) and thus use mobile more. For example, workers with
basic education like Cab drivers and food delivery persons use mobile more, while
ICT-based tasks usually have some specific skill requirements like English proficiency,
knowledge of computers, and IT skills.
Further, workers with advanced education have better access and skills to use
broadband internet connection. In its initial era of discovery, ICT use was limited to
labor and cost savings. However, it has gradually grown to have wider applications in
innovation, quality assurance, research and development, new product building, brand
building, and marketing and many more advanced stages. Our findings are consistent
with the literature on SBTC. Chun (2003) found that educated workers had a com-
parative advantage in adopting ICT for 56 industries from 1960 to 1996. Autor
et al. (1998) find that the relative demand for college students in the US grew faster
from 1970 to 1995 as compared to 1940 to 1995.
Moreover, we analyze the impact of export structure on employment — overall and
skill-wise. A more commodity-wise concentrated export basket indicated by the higher
value of CCI can lead to new employment opportunities overall, whereas geographical
diversification of export does not have any impact on overall employment. It indicates
that specialization according to comparative advantage can create overall employment
opportunities. A plausible explanation for this is that when the scale of production
expands for the sectors in which a country has comparative advantage, requirement of
labor (especially semi-skilled) increases.
However, the effect is completely different when we consider low- and high-skilled
workers. A more product-wise diversified export structure creates more employment
opportunities for unskilled workers. That means commodity ED leads to an expansion
of low-skill-intensive jobs. This can happen as horizontal differentiation may not
require skilled labor. Since products are horizontally differentiated, unskilled workers
can produce more varieties. This result has strong policy implications for developing
countries endowed with unskilled and semi-skilled workers. In the post-pandemic
revival period, one of the immediate objectives of the countries is to create sustainable
employment opportunities. Our result suggests that ED can be one such policy mea-
sure for the sample of OECD and G20 countries. A diversified export basket will not
only ensure faster economic growth (Aditya and Acharyya, 2013) but also more
employment opportunities. However, geographical diversification does not have any
impact on low-skill employment.
In contrast, for high-skilled workers, the results are polar opposite. Here, product-
wise ED has an insignificant impact. That means specialization according to com-
parative advantage can be beneficial for the medium- and semi-skilled workers. In
contrast, higher geographical diversification of exports can strongly expand high-skill-
intensive jobs. This can imply that if developing countries focus on transitioning
unskilled and semi-skilled workers to highly skilled workers, more geographical

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M. K. Sharma & A. Aditya

diversification will make them more employable. As the producers and exporters need
to cater to market specific requirements to capture new export markets, more skilled
labor is required to diversify export basket destination-wise.
After discussing our variables of interest, we now discuss the impact of other
potential determinants of employment. We find that past employment (overall and
skill-wise) has significant positive impact implying the persistence effect. It is very
surprising to note that the scale effect measured by the expansion of the size of the
economy (in terms of value-added) is positive for overall employment and low-skilled
workers but negative for high-skilled workers (refer to columns 3 and 6 of Table A.3,
when only FDI is taken as capital) by shrinking job opportunities. In particular, we see
that LGVA is positively significant in the aggregate employment and basic education-
wise employment model. Therefore, we can say that there is a positive scale effect
which implies that increase in output or size of a sector will increase the demand for
labor, especially unskilled/semi-skilled. However, mere expansion of the size of a
sector by producing more output may not require more skilled labor. Developing new
products or innovations can generate job opportunities for skilled labor. That means
high-skilled workers are required to develop new product varieties, designs, blueprints,
and innovations. Once a variety is developed, production of a larger amount can be
carried out by using only unskilled workers. This can be a plausible reason behind
the negative relationship between the expansion of the size of the economy and
the high-skilled worker’s employment. Following Krugman (1979), Aditya and
Acharyya (2015) developed a theoretical model with a fixed amount of capital and
variable input, labor. In that framework, the fixed factor (capital) can alternatively be
interpreted as human capital (or skilled labor), required to develop new blueprint or
design new variety. Once the blueprint or design is developed, production of such a
new variety will require only labor and the amount of labor use increases propor-
tionately with production.
Next, we find that demand for labor at the aggregate level falls as wage increases.
However, for the disaggregated skill level-wise analysis, it has an insignificant impact
on the demand for unskilled workers. This makes sense because, in many countries,
especially the developing ones, an abundant supply of unskilled labor is available at
the ongoing wage rate. For skilled labor, only for the model when FDI is considered,
wage rate positively impacts demand for high-skill labor.
It is interesting to note that the impact of domestic physical capital accumulation
(captured in terms of GFCF) also differs in the three models. GFCF has comple-
mentarity effect for overall employment, is insignificant for low-skilled workers, and
strongly replaces high-skilled workers. That means investment in domestic fixed asset
formation, like the creation of physical infrastructure, creates more employment
opportunities overall. This can be especially very important for the medium and semi-
skilled workers employed in the manufacturing industries, which are not considered in
our study in the disaggregated skill-level-wise analysis. However, domestic capital
formation does not impact the unskilled workers engaged in agriculture and other

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 Changing Trade Pattern, ICT, and Employment

primary sector activities. In contrast, more capital-intensive automated production

technology in the manufacturing and service industries can displace skilled workers to
a large extent.
As far as net inflow of FDI is considered, it does not have any impact on overall
employment and low-skilled workers but is found to be labor displacing for high-
skilled workers. That means foreign investments go to the sectors or activities which
fail to create employment opportunities for unskilled and semi-skilled workers. FDI is
an essential source of superior technology from advanced countries to developing
ones. FDI often brings state-of-the-art technology, which can displace high-skilled
workers.
Next, we explore the impact of R&D. A country’s research and development (R&D)
investment represents its part of the capital dedicated to developing new innovations,
products, services, and solutions. In this paper, we find that greater R&D expenditure,
bringing technological improvements, may in turn lead to contraction in employment
skill-wise, but is insignificant overall. Better technology of production can displace
workers. In fact, the increase in investment in R&D may cause an increase in the use of
plant and machinery and thus possibly decrease the demand for both skilled and
unskilled workers. Also increase in R&D results in improved products, processes and
higher productivity thus requiring less manpower. If we see in Table A.3, R&D results
in the contraction of high-skilled labor for FDI-only model, which suggests that R&D
investment coming from outside countries may result in lower demand for local high-
skilled labor, and the high-skilled labor supply is possibly coming from the outside
countries or outsourced to these countries. This may be generally true as in developed
nations the high R&D cost is reduced by outsourcing the high skill jobs to other
cheaper countries in place of using the local labor.
Finally, we examine the impact of trade liberalization in terms of tariff reduction on
employment. A country’s trade regime can have essential implications on its domestic
employment pattern. Theoretically, trade liberalization can create new employment
opportunities for unutilized resources by expanding market size. The output depends
on the amount of labor used, which in turn depends on the price of labor or wage rate
and therefore wage rate is used as one of the control variables. In our case, we find that
the protection of domestic industries by the imposition of tariff is found to create more
employment opportunities overall (see Table A.1, column 6 when only FDI is con-
sidered). Increased domestic production due to the imposition of tariffs absorbs the
domestic labor force. However, for high- and low-skilled workers, tariff has an in-
significant impact.

5. Conclusion
We have examined the impacts of ED and ICT on employment for 45 OECD and G20
countries from 1990 to 2019 after controlling for the effects of value-added, wage,
physical capital formation, FDI, R&D expenditure, and trade liberalization. We have

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M. K. Sharma & A. Aditya

further explored whether ED and ICT have any differential impacts on high and low-
skilled workers for 33 OECD and G20 countries from 1995 to 2019. GMM dynamic
panel estimation results suggest that a more product-wise concentrated export basket
indicated by the higher value of CCI can lead to new employment opportunities. In
contrast, a more product-wise diversified export structure creates more employment
opportunities for unskilled workers, which means it expands low-skill-intensive jobs.
Geographical diversification of export does not have any impact on overall employ-
ment and low-skill employment but can strongly expand high-skill-intensive jobs.
Mobile is insignificant, while Internet has substitution effects on overall employment.
However, greater use of mobile expands job opportunities for low-skill workers but has
a substitution effect for high-skill workers. Better internet complements high-skill-
intensive jobs but displaces low-skilled workers.
These results have strong policy implications for developing countries endowed
with unskilled and semi-skilled workers. In the post-pandemic revival period, one of
the immediate objectives of the countries is to create sustainable employment oppor-
tunities. Our result suggests that ED can be one such policy measure for the set of
OECD and G20 countries. Results also suggest that if developing countries focus on
transitioning unskilled and semi-skilled workers to highly skilled workers, more
geographical diversification will make them more employable. A more nuanced
analysis for semi-skilled workers with medium level of education can be worthwhile to
analyze.

Acknowledgments
The authors express their gratitude to the anonymous reviewer as well as editor for
their helpful comments and suggestions on the earlier version of the paper.

Appendix A

Table A.1. Results of Dynamic Panel estimation of the impact of export diversification and
ICT on aggregate Employment.

Independent (1) (2) (3) (4) (5) (6)

Variables

Lt1 0.37*** 0.39*** 0.37*** 0.48*** 0.39*** 0.48***

(0.05) (0.05) (0.05) (0.04) (0.05) (0.04)
LGVA 9.84*** 9.35*** 9.92*** 15.46*** 9.41*** 15.45***
(0.61) (0.54) (0.60) (0.77) (0.53) (0.79)
LW 0.65** 0.73*** 0.65** 1.67*** 0.73*** 1.66***
(0.28) (0.27) (0.27) (0.32) (0.27) (0.32)

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 Changing Trade Pattern, ICT, and Employment

Table A.1. (Continued )

Independent (1) (2) (3) (4) (5) (6)

Variables

GFCF 0.24*** 0.24*** 0.24*** — 0.24*** —

(0.02) (0.02) (0.02) (0.02)
FDI 0.001 0.001 — 0.001 — 0.001
(0.001) (0.001) (0.002) (0.001)
Mobile 0.002 0.001 0.002 0.003 0.002 0.003
(0.002) (0.002) (0.002) (0.003) (0.002) (0.003)
Internet 0.01*** 0.01*** 0.01*** 0.04*** 0.01*** 0.04***
(0.005) (0.005) (0.005) (0.01) (0.005) (0.01)
R&D 0.06 0.08 0.05 0.12 0.07 0.12
(0.20) (0.19) (0.20) (0.29) (0.19) (0.29)
Tariff 0.01 0.03 0.01 0.03 0.0004 0.04*
(0.03) (0.03) (0.03) (0.02) (0.03) (0.02)
CCI — 1.59*** — — 1.63*** 0:25
(0.51) (0.51) (0.53)
GCI 2.44 2.53 1.06 — —
(1.94) (1.94) (2.63)
Constant 218.90*** 204.39*** 221.00*** 343.93*** 205.76*** 343.31***
(14.26) (14.01) (13.71) (17.81) (13.71) (18.44)
Sargan test 0.2287 0.2765 0.2256 0.1426 0.2726 0.1473
p-value
AR(2) test 0.9349 0.8512 0.9777 0.7245 0.8766 0.7452
p-value

Notes: Standard errors in parentheses; Note 2. ***p < 0:01, ** p < 0:05, *p < 0:1.
Variables description:
Dependent Variable
Lt ¼ Employment to population ratio
Explanatory Variables:
LGVA ¼ Log of Gross Value added, LW ¼ Log of Compensation of employees (divided by PPP
conversion factor), GFCF ¼ Gross fixed capital formation (% of GDP), FDI ¼ Foreign direct invest-
ment, net inflows (% of GDP), Mobile ¼ Mobile cellular subscriptions (per 100 people), Inter-
net ¼ Individuals using internet (% of population), R&D ¼ Research and development expenditure (%
of GDP), Tariff ¼ Tariff rate, applied, weighted mean, all products (%), CCI ¼ Commodity concen-
tration index, GCI ¼ Geographical concentration index.

2350009-13
M. K. Sharma & A. Aditya

Table A.2. Results of Dynamic Panel estimation of the impact of export diversification and
ICT on labor quality (Basic Education).

Independent (1) (2) (3) (4) (5) (6)

Variables

LQt1 0.87*** 0.87*** 0.85*** 0.86*** 0.86*** 0.85***

(0.03) (0.03) (0.02) (0.03) (0.03) (0.02)
LGVA 4.94*** 5.00*** 3.74*** 5.27*** 5.11*** 4.14***
(1.08) (1.07) (0.67) (1.12) (1.04) (0.65)
LW 0.05 0.02 0.06 0.14 0.11 0.17
(0.27) (0.28) (0.26) (0.24) (0.26) (0.23)
GFCF 0.04 0.05* — 0:04 0:04 —
(0.03) (0.02) (0.03) (0.03)
FDI 0.001 — 0.001 0:0004 — 0:001
(0.001) (0.001) (0.001) (0.001)
Mobile 0.01* 0.01* 0.01 0.005* 0.004* 0.004
(0.003) (0.003) (0.004) (0.003) (0.003) (0.003)
Internet 0.04*** 0.04*** 0.03*** 0.04*** 0.04*** 0.04***
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
R&D 1.56*** 1.54*** 1.56*** 1.49*** 1.47*** 1.52***
(0.24) (0.24) (0.25) (0.25) (0.25) (0.24)
Tariff 0.03 0.03 0.03 0.01 0.02 0.004
(0.03) (0.03) (0.03) (0.04) (0.04) (0.04)
CCI — — — 2.29*** 2.24*** 2.36***
(0.26) (0.26) (0.34)
GCI 0.84 1.35 0.94 — — —
(1.93) (1.88) (1.47)
Constant 125.39*** 125.42*** 94.79*** 136.03*** 130.95*** 107.61***
(24.86) (24.47) (16.88) (27.07) (24.68) (16.43)
Sargan test 0.2541 0.2462 0.2605 0.2608 0.2575 0.2660
p-value
AR(2) test 0.9056 0.8971 0.9717 0.9458 0.9423 0.9824
p-value

Notes: Standard errors in parentheses; Note 2. ***p < 0:01, **p < 0:05, *p < 0:1.
Variables description:
Dependent Variable
LQt ¼ Employment to population ratio by Basic Education
Explanatory Variables:
LGVA ¼ Log of Gross Value added, LW ¼ Log of Compensation of employees (divided by PPP
conversion factor), GFCF ¼ Gross fixed capital formation (% of GDP), FDI ¼ Foreign direct invest-
ment, net inflows (% of GDP), Mobile ¼ Mobile cellular subscriptions (per 100 people), Inter-
net ¼ Individuals using internet (% of population), R&D ¼ Research and development expenditure (%
of GDP), Tariff ¼ Tariff rate, applied, weighted mean, all products (%), CCI ¼ Commodity concen-
tration index, GCI ¼ Geographical concentration index.

2350009-14
 Changing Trade Pattern, ICT, and Employment

Table A.3. Results of Dynamic Panel estimation of the impact of export diversification and
ICT on labor quality (Advanced Education-wise).

Independent Variables (1) (2) (3) (4) (5) (6)

HQt1 0.83*** 0.82*** 0.92*** 0.83*** 0.82*** 0.92***

(0.03) (0.03) (0.03) (0.03) (0.02) (0.03)
LGVA 2.71*** 2.90*** 2.71*** 2.54*** 2.64*** 3.22***
(0.87) (0.87) (0.56) (0.91) (0.88) (0.54)
LW 0.19 0.26 0.41 0.36 0.43 0.64**
(0.32) (0.33) (0.28) (0.35) (0.37) (0.29)
GFCF 0.19*** 0.19*** — 0.19*** 0.20*** —
(0.02) (0.02) (0.02) (0.02)
FDI 0.01*** — 0.01*** 0.01*** — 0.01***
(0.00) (0.001) (0.001) (0.001)
Mobile 0.01*** 0.02*** 0.01** 0.01*** 0.01*** 0.01
(0.003) (0.003) (0.004) (0.004) (0.004) (0.004)
Internet 0.04*** 0.04*** 0.05*** 0.04*** 0.04*** 0.05***
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
R&D 0.47* 0.41 0.72** 0.46* 0.41 0.80***
(0.24) (0.26) (0.28) (0.25) (0.25) (0.27)
Tariff 0.05 0.05 0.03 0.03 0.03 0.07
(0.06) (0.06) (0.07) (0.08) (0.08) (0.08)
CCI — — — 0.70 0.98 0.88
(0.82) (0.81) (0.81)
GCI 14.11*** 14.04*** 9.74*** — — —
(1.92) (1.87) (2.29)
Constant 62.04** 68.52*** 67.89*** 66.60*** 70.90*** 72.47***
(24.86) (25.28) (19.49) (23.81) (23.14) (19.15)
Sargan test p-value 0.1846 0.1847 0.2825 0.1885 0.1917 0.2259
AR(2) test p-value 0.8117 0.7065 0.8592 0.9033 0.8220 0.7736

Notes: Standard errors in parentheses; Note 2. ***p < 0:01, **p < 0:05, *p < 0:1.
Variable description:
Dependent Variable
HQt ¼ Employment to population ratio by Advanced Education
Explanatory Variables:
LGVA ¼ Log of Gross Value added, LW ¼ Log of Compensation of employees (divided by PPP
conversion factor), GFCF ¼ Gross fixed capital formation (% of GDP), FDI ¼ Foreign direct invest-
ment, net inflows (% of GDP), Mobile ¼ Mobile cellular subscriptions (per 100 people), Inter-
net ¼ Individuals using internet (% of population), R&D ¼ Research and development expenditure
(% of GDP), Tariff ¼ Tariff rate, applied, weighted mean, all products (%), CCI ¼ Commodity con-
centration index, GCI ¼ Geographical concentration index.

2350009-15
M. K. Sharma & A. Aditya

Table A.4. Country list. (For overall employment data analysis)

Sl. No. Country Name (Developed) Sl. No. Country Name (Developing)

1. Australia 32. Argentina

2. Austria 33. Brazil
3. Belgium 34. Chile
4. Canada 35. China
5. Czech Republic 36. Colombia
6. Denmark 37. India
7. Estonia 38. Indonesia
8. Finland 39. Israel
9. France 40. Mexico
10. Germany 41. Russia
11. Greece 42. Saudi Arabia
12. Hungary 43. South Africa
13. Iceland 44. South Korea
14. Ireland 45. Turkey
15. Italy
16. Japan
17. Latvia
18. Lithuania
19. Luxembourg
20. New Zealand
21. Netherlands
22. Norway
23. Poland
24. Portugal
25. Slovak Republic
26. Slovenia
27. Spain
28. Sweden
29. Switzerland
30. United Kingdom
31. United States

Table A.5. Country list (For Skill level employment data analysis)

Sl. No. Country Name (Developed) Sl. No. Country Name (Developing)

1. Austria
2. Belgium
3. Canada
4. Czech Republic
5. Denmark
6. Estonia
7. Finland

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 Changing Trade Pattern, ICT, and Employment

Table A.5. (Continued )

Sl. No. Country Name (Developed) Sl. No. Country Name (Developing)

8. France 29. Colombia

9. Germany 30. Indonesia
10. Greece 31. Mexico
11. Hungary 32. South Africa
12. Iceland 33. South Korea
13. Ireland
14. Italy
15. Latvia
16. Lithuania
17. Luxembourg
18. Netherlands
19. Norway
20. Poland
21. Portugal
22. Slovak Republic
23. Slovenia
24. Spain
25. Sweden
26. Switzerland
27. United Kingdom
28. United States

Table A.6. List of variables and data sources.

S. No. Variable Definition Data Sources

Dependent Variables
(1) Employment Rate The ratio of Employment to the population available WDI
for work.
EPR (%) ¼ (Persons employed/Working-age
population)100
(2) Skill Indicator: These two extremes give unskilled and skilled em- ILO stat
Employment to ployment shares, and it is the ratio of education-
population ratio wise Employment to the population available for
work. Represents the Employment rate by Ad-
1. Basic Educa- vanced and Basic education levels
tion-wise
2. Advance Edu- 1. Includes Primary and Lower secondary education
cation-wise 2. Includes Short-cycle tertiary education, Bache-
lor’s or equivalent level, Master’s or equivalent
level, Doctoral or equivalent level education

2350009-17
M. K. Sharma & A. Aditya

Table A.6. (Continued )

S. No. Variable Definition Data Sources

Independent Variables
(1) Commodity Con- This Hirschman Herfindahl index measures the WITS, United
centration Index dispersion of trade value across an exporter’s Nations Com-
(CCI) products. modity Trade
It measures the concentration, or diversification, of a database (UN-
country’s trade in terms of products. It is calcu- COMTRADE)
lated as the sum of squared product shares in a
country’s exports and then normalized between 0
and 1.
(2) Geographical Con- This Hirschman–Herfindahl index measures the dis- WITS, UN-COM-
centration Index persion of trade value across an exporter’s part- TRADE
(GCI) ners.
It measures the concentration, or diversification, of a
country’s trade in terms of trading partners. It is
calculated as the sum of squared destination
shares in a country’s exports and then normalized
between 0 and 1.
(3) Gross Value Added It is the value of output less the value of intermediate WDI
(Constant consumption; it is a measure of the contribution to
Prices, USD) GDP made by an individual producer, industry, or
sector.
Gross value added at factor cost (formerly GDP at
factor cost) is derived as the sum of the value-
added in the agriculture, industry, and services
sectors.
(4) Wage (USD) Compensation of employees consists of all payments WDI
in cash, as well as in kind (such as food and
housing), to employees in return for services
rendered and government contributions to social
insurance schemes such as social security and
pensions that provide benefits to employees.
(5) R&D Expenditure The gross domestic expenditure on R&D indicator WDI
(RND) (% of consists of the total expenditure (current and
GDP) capital) on R&D by all resident companies, re-
search institutes, universities, and government
laboratories. It is taken as a percent of GDP.
(6) ICT Use (ICT): 1. Individuals as a Percentage of the population who International Tele-
have used internet (from any location) in the last communication
1. Internet users three months. Union (ITU)
(% of the popu- Internet is a worldwide public computer network.
lation) It provides access to a number of communication
2. Mobile Cellular services, including the World Wide Web and
Subscriptions carries email, news, entertainment, and data files,
(Per 100 people) irrespective of the device and network used.

2350009-18
 Changing Trade Pattern, ICT, and Employment

Table A.6. (Continued )

S. No. Variable Definition Data Sources

2. Subscriptions to a public mobile telephone service

using cellular technology, which provide access to
the public switched telephone network. Includes
all mobile cellular subscriptions that offer voice
communications. Data is derived using adminis-
trative data from countries (authority or Ministry)
regularly.
(7) Gross Fixed Capital GFCF (formerly gross domestic fixed investment) WDI
Formation includes land improvements (fences, ditches,
(GFCF) (% of drains, and so on); plant, machinery, and equip-
GDP) ment purchases; and the construction of roads,
railways, and the like, including schools, offices,
hospitals, private residential dwellings, and com-
mercial and industrial buildings. According to the
1993 SNA, net acquisitions of valuables are also
considered capital formation.
(8) Weighted Average Effectively Applied Weighted Average (%) tariff; The WITS - UNCTAD
Tariff (%) average of tariffs weighted by their corresponding TRAINS
trade value is used.

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