The impact of trade on employment: New evidence from a global value chains perspective

Abstract

Given the magnitude impact of global value chains (GVCs) in reconstructing the pattern of world trade, its employment implications deserve thorough study. In this paper we explore the impact of GVCs position on employment across countries and its heterogeneous mechanisms. We perform an in-depth theoretical analysis followed by an empirical test using panel data for 56 industries in 42 countries from 2000 to 2014. The results show that enhancing the GVCs position will significantly increase employment, with a more pronounced effect in developing countries. Mechanical tests demonstrate a positive wage effect for developed countries. For developing countries, there is a positive demand effect and a negative factor substitution effect. Heterogeneity tests show that developed countries promote employment primarily by improving the forward GVCs position. Developing countries boost employment mainly by reducing the backward GVCs position. Further research has revealed that employment in developed countries has a clear preference for industries with higher GVCs, crowding out employment in other industries. This paper has enriched research on the employment implications of GVCs position and exploring the possible crowding effect during the evolution of the position of GVCs, which has been informative and insightful for countries in formulating GVCs participation and employment policies.