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Ms. Kimberly Beaton, Ms. Valerie Cerra, and Metodij Hadzi-Vaskov
This paper examines the impact of trade on employment, wages, and other outcomes across countries and explores the conditions and policies that help spread the gains from trade more evenly throughout the population. We exploit a large global firm-level dataset to examine the impact of import competition on employment, wages, and firm performance, as well as the firm, industry, and country factors that mitigate any negative impact of an import shock. In contrast to the results of some well-known single-country studies, we find limited adverse impact of import competition. In some countries and industries, import competition actually strengthens employment growth. In addition, import competition tends to improve average wages, investment, and firm profitability. Country characteristics, such as educational attainment, can also improve employment prospects in response to trade shocks. Finally, we find that firms experiencing greater import competition start with higher average wages; thus any relatively slower employment growth in this group of firms could lead to lower inequality.
Mr. Gonzalo Salinas
The lack of a clear link between general economic fundamentals and export diversification indicators in the literature has fueled the believe that industrial policies are an absolute requisite to diversify exports. This paper, however, does find a strong statistical connection between horizontal policies and diversification by making two novel changes to traditional methodologies: using export categories that lead to diversification (for example, manufactures) as dependent variables, and using a gravity-equation regression setting. Proximity to other economies explains about a third of cross-country heterogeneity in targeted exports, and four fifths together with horizontal policies. Australia, Chile, and New Zealand emerge as new role models for diversification policies.
Ms. Natasha X Che
Uruguay experienced one of its biggest economic booms in history during 2004-2014. Since then, growth has come down significantly. The paper investigates the various causes of the boom and discusses the sustainability of these causes. It then compares Uruguay against high-growth countries that were once at a similar income level, across a broad set of structural indicators, to identify priority reform areas that could improve long-term growth prospect.
Ms. Natasha X Che
This paper presents a set of collaborative filtering algorithms that produce product recommendations to diversify and optimize a country's export structure in support of sustainable long-term growth. The recommendation system is able to accurately predict the historical trends in export content and structure for high-growth countries, such as China, India, Poland, and Chile, over 20-year spans. As a contemporary case study, the system is applied to Paraguay, to create recommendations for the country's export diversification strategy.
Ms. Valerie Cerra and Martha Tesfaye Woldemichael
This paper investigates the determinants of sustained accelerations in goods and services exports. Strong predictors of export takeoffs include domestic and structural indicators such as lower macroeconomic uncertainty, improved quality of institutions, a depreciated exchange rate, and agricultural reforms. Lower tariffs, participation in global value chains and diversification also contribute to initiating export accelerations. The paper also finds heterogeneity, with somewhat different triggers for Latin America and the Caribbean, as well as for goods and services. Finally, despite the lack of a robust effect on output, export surges tend to be associated with lower post-acceleration unemployment and income inequality.
Shahid Yusuf
Since the onset of the Arab Spring, economic uncertainty in Egypt, Jordan, Libya, Morocco, Tunisia, and Yemen (Arab Countries in Transition, ACTs) has slowed already sluggish growth; worsened unemployment, particularly of youth; undermined business confidence, affected tourist arrivals, and depressed domestic and foreign direct investment. Furthermore, political and social tensions have constrained reform efforts. Assessing policy options as presented in the voluminous literature on the Arab Spring and based on cross-country experience, this paper concludes that sustainable and inclusive growth calls for a two pronged approach: short term measures that revive growth momentum and partially allay popular concerns; complemented with efforts to adjust the public’s expectations and prepare the ground for structural reforms that will deliver the desired longer tem performance.
Mr. Paulo Drummond and Miss Estelle X Liu
The rapid growth in China’s domestic investment in recent decades has generated a large appetite for global goods, including from sub-Saharan Africa (SSA). This paper estimates the impact of changes in China’s investment growth on SSA’s exports. Although rising trading links with China have allowed African countries to diversify their export base across countries, away from advanced economies, they have also led SSA countries to become more susceptible to spillovers from China. Based on panel data analysis, a 1 percentage point increase (decline) in China’s domestic investment growth is associated with an average 0.6 percentage point increase (decline) in SSA countries’ export growth. This impact is larger for resource-rich countries, especially oil exporters. These effects could be mitigated, however, to the extent that countries can reorient their exports.
International Monetary Fund
Using Chilean data, we document that for resource-rich small open economies the effects of terms of trade shocks on the wage gap (between skilled and unskilled workers) depend on factor intensities in the non-tradable sector, following the model in Galiani, Heymann, and Magud (2010). For a skilled-intensive non-tradable sector we show that improvements in the terms of trade benefit skilled workers. We also show that this relation holds at the industry level: the wage gap widens in skilled-intensive sectors while it shrinks in unskilled-intensive ones, the more so as terms of trade volatility decreases.
Mr. Arvind Subramanian and Mr. Devesh Roy
This paper examines different explanations-initial conditions, openness to trade and FDI, and institutions-of the Mauritian growth experience since the mid-1970s. We show that arguments based on openness to trade and FDI are either misleading or incomplete, and the transmission mechanism insufficiently identified. However, even when correctly articulated, openness appears to be a proximate rather than an underlying explanation for the Mauritian experience. The institution-based explanation offers greater promise. Ultimately, however, the econometric results indicate that existing explanations may be incomplete. Some idiosyncratic factors, particularly Mauritian diversity and the responses to managing it, may provide the missing pieces in the story of Mauritius's success.