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Structural change, international trade, and labor markets in a low-income country: Evidence from Vietnam

Dartmouth College

Principal Investigator: Nina Pancnik,


The project consists of two parts.

The first part of the project seeks to understand the relationship between trade,employment, and productivity in a low-income country setting.  This topic is particularly timely in thecontext of recent bilateral free trade agreements and international trade negotiations,which aim to improve the trading prospects of low-income countries.  The project will study the consequences of export opportunities induced by the U.S.-vietnam Bilateral Trade Agreement for employment and productivity of formal enterprises in Vietnam. This export expansion led to a relative reduction in household business employment and to the reallocation of workers away from household businesses toward employers in the formal enterprise sector in industries subject to larger U.S. tariff  declines.

The current project builds on this existing evidence and will study the channels through which new export opportunities increased labor demand in the registered enterprise  sector. The empirical framework  will combine longitudinal firm-level data from the annual Enterprise Survey that covers all registered enterprises in Vietnam,with variation in industry-specific declines in export costs induced by the trade agreement. The project will analyze the impact of exporting on employment across heterogeneous employers and the relative contribution of incumbents and new entrants,such as private domestic businesses and foreign-invested firms, toward aggregate enterprise employment growth.  Labor reallocation across heterogeneous employers might have important implications for aggregate productivity. The channels through which theBTA might have increased aggregate industry productivity in the enterprise sector '.Aliff also be examinedincluding the ro!e of reallocation of fabor and market  shares across incumbent  firms,the  exit and entry of new firms, and firm-level productivity improvements.

During the 2000s, Vietnam experienced a significant decline in agricultural employment and expansion of employment in manufacturing and services, paralleled by a sharp reduction in the aggregate share of household business employment. The second part of the project  will use comprehensive longitudinal data on individuals,workers, household businesses,and firms in the enterprise sector to document and analyze the reallocation of workers in and out of employment, across industries,and across heterogeneous employers over a decade of rapid growth in a low-income country setting.

This first component of this analysis will focus on the reallocation of individuals  and firms between the household business and enterprise sectors,a margin of adjustment that has potentially important welfare and productivity implications in a low-income country setting,but is rarely observed. The study will consider the role of reallocation among incumbent workers across sectors, heterogeneous employers within sectors, and entry and exit from the workforce for the aggregate decline in household business employment, The study will further  examine whether the transitions of workers to the enterprise sector are short-lived or permanent during this period,and whether and how transitions between household businesses and enterprises vary with individuals' demographic,educational and geographic location characteristics.  The study will also examine entry and exit of household businesses,revenue and employment growth  among the incumbent firms,and transitions of growing household businesses to enterprises using the household business module of the Vietnam Household Living Standard Surveys spanning the 2000s. This will enable us to quantify the importance of transitions of household businesses to enterprises toward the expansion of the enterprise sector.

In continuation,the project  will study employment  and productivity dynamics of firms in the enterprise sector using the Enterprise Surveys from 2.000 to 2.010. The analysis will consider the relative role of firm-level productivity growth among the incumbents and labor and market share reallocation from less to more productive firms for changes in industry productivity. The project  will quantify the role of net entry and the differences in employment/productivity growth across firms in terms of initial productivity and size,and between foreign-invested, domestic private, and state-owned firms.

Overall,the project will provide comprehensive evidence on the microeconomic channels fuelling the growth of the enterprise sector in a low-income country setting.


Paper by Brian Mc Caig and Nina Pavcnik: Export markets and labor allocation in a low-income country

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