The Global Labor Market Impact of Emerging Giants: A Quantitative Assessment

54 Pages Posted: 5 Sep 2013

See all articles by Andrei A. Levchenko

Andrei A. Levchenko

University of Michigan - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jing Zhang

University of Michigan at Ann Arbor

Date Written: September 4, 2013

Abstract

This paper investigates both aggregate and distributional impacts of the trade integration of China, India, and Central and Eastern Europe in a quantitative multi-country multi-sector model, comparing outcomes with and without factor market frictions. Under perfect within-country factor mobility, the gains to the rest of the world from trade integration of emerging giants are 0.37%, ranging from –0.37% for Honduras to 2.28% for Sri Lanka. Reallocation of factors across sectors contributes relatively little to the aggregate gains, but has large distributional effects. The aggregate gains to the rest of the world are only 0.065 percentage points lower when neither capital nor labor can move across sectors within a country. On the other hand, the distributional effects of the emerging giants' trade integration are an order of magnitude larger, with changes in real factor returns ranging from –5% to 5% across sectors in most countries. The workers and capital owners in emerging giants' comparative advantage sectors such as Textiles and Wearing Apparel experience greatest losses, while factor owners in Printing and Medical, Precision and Optical Instruments normally gain the most.

Keywords: factor markets, Ricardian models of trade, welfare, distributional impact

JEL Classification: F11, F15, F16

Suggested Citation

Levchenko, Andrei A. and Zhang, Jing, The Global Labor Market Impact of Emerging Giants: A Quantitative Assessment (September 4, 2013). FRB of Chicago Working Paper No. 2013-10, Available at SSRN: https://ssrn.com/abstract=2320645 or http://dx.doi.org/10.2139/ssrn.2320645

Andrei A. Levchenko

University of Michigan - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Jing Zhang (Contact Author)

University of Michigan at Ann Arbor ( email )

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Ann Arbor, MI 48109
United States

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