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CDP Background Paper No. 45

ST/ESA/2018/CDP/45 Rev.1

December 2018

International trade or technology? Who

is left behind and what to do about it*

Ann Harrison**

* ?is paper replaces a previous version entitled "International Trade: Who is left behind and what to do about it".

** Member of the Committee for Development Policy (CDP); University of California, Berkeley Haas; research

associate at the National Bureau of Economic Research (NBER). All errors remain those of the author.

Department of Economic & Social Affairs

ABSTRACT

We examine globalization's effects on those left behind in both industrial and emerging mar- kets. While access to global markets has lifted billions out of poverty in emerging markets, the benefits have not been equally shared. Increased competition through globalization as well as skill-biased technical change has hurt less educated workers in rich and poor countries. While much of the rising inequality is often attributed to globalization alone, a brief review of the literature suggests that labor-saving technology has likely played an even more important role. The backlash has focused on the negative consequences of globalization in developed countries, and now threatens the global trading system and access to that system for emerging markets. We conclude by proposing some solutions to compensate losers from the twin forces of techni- cal change and globalization.

Keywords:

trade, "leaving no one behind", globalization, inequality

JEL Classification: F02, F16, D63

CONTENTS

1

Countries left behind by globalization .......................................................................

3 2

Individuals left behind by globalization in emerging markets ................................................9

3

Individuals left behind in industrial countries: disentangling globalization and technology ...................9

4

The Consequences: political polarization and stagnation in growth of world trade ...........................12

5

Implications for Policy: Trade, Technology and LNOB ........................................................13

Bibliography ....................................................................... ........................18 CDP Background Papers are available at https://www. pers/. The views and opinions expressed herein are those of the author and do not necessarily reflect those of the United Nations Secretariat. The designations and terminology employed may not conform to United Nations practice and do not imply the expression of any opinion whatsoever on the part of the Organization.

UNITED NATIONS

Committee for Development Policy

UN Secretariat, 405 East 42nd Street

New York, N.Y. 10017, USA

e-mail: cdp@un.org http://cdp.un.org notbeenequally reviewof technologyandglobalization.

1. Countriesleftbehindbyglobalization

war, aspoorgovernanceandcorruption.In inpopulation, commoditymarketsinthe

4CDPBACKGROUNDPAPERNO.45

theirAsian thereisanevengreaterdigital My countrieshave tradeor whousethisframeworktoarguethat globalizationisgoodfortheworld'spoormakeanumberofheroicassumptions.Theseassumptions - suchasthe necessitythatallcountriesproduceallgoods - arechallengedinmybook.Inaddition,thecountrystudiesshow thatlaborisnotnearlyasmobileastheHO sectorsthatuseunskilled global countriestypicallypossess. tradeeverywhere. leadtothekindsof reductionsininequalitythatHOpredicts.However,ifthereareexogenousdifferencesinproductivity - withthe richestcountriesexhibitingthehighestproductivity - thenopeninguptotradewillexacerbateinequality. turn indevelopingcountries. thepoor my

Mexicanexporterslikelycompetemorewith

thatit

Hanson(1996)emphasizethatacountry

couldbegloballylaborͲabundantbutlocallylaborͲscarce - inotherwords,MexicoisreallycompetingwithChina,

nottheUnitedStates.Thisideaof"local"endowmentsmatteringisacriticalone - andcanservetoexplainwhy inequalitycouldincreaseinboththeUSand shelveasimpleͲmindedapproachto areactualsubstitutes. leftbehindiftradereformsareimplemented nets.InMexico,ifpoorcorn of likelytobedisappointing.

6CDPBACKGROUNDPAPERNO.45

macroeconomicstability. falleninregionswhere gainfromfallingprices legislationandafallinpoverty.InPoland,unskilledworkers - whoarethe mostlikelytobepoor - gainedfrom

Poland'saccessiontotheEuropeanUnion.

1995pesocrisis.Povertyrates

if inflowsareassociatedwith thebook'scasestudiesonIndiaandMexico. ways.In protected consumersofthosesamegoods. tariffs.Wefoundthatgreateropenness - usingeither 1 becorrelatedwithtradepolicies.Other

Althoughsomespecifications - notablythosethatincludecountryfixedeffectsandinstrumentforopennessusinglagged

values - arenotalwayssignificantatthe5percentlevel,the openness(measuredusingtrade shares)andgrowth. afallinpoverty.Thiskeyresulthas populationthatispoor. 2 insignificant 3 growth",butthatinmany climate.Wewillshowevidencelater foreigninvestment) isnotasproͲpoorasothersources - suchasinnovationsthatincreaseagriculturalproductivity. outa of 2

GDPpercapita:theinclusionoftimeeffects,

suchlargechangesinthecoefficientonGDPpercapitasuggeststhat - despiteastrongpoverty

Ͳreducingeffectofgrowth -

3 anonlinearrelationshipbetween

8CDPBACKGROUNDPAPERNO.45

and nonͲpoormaynotmaterialize.

Thelatestpapers

Using inGDPpercapitaperyear.Theythenestimatea emergingmarkets.Onlythreeeconomies - Bulgaria,Romania,andIndonesia,appeartoshownetwelfarelosses. areimportanttonote.First,theseeffects - despitetheenormousincreaseinChina'sshareinglobaltrade - are economy,whichwediscussinmoredetail below.

2. Individualsleftbehindbyglobalizationinemergingmarkets

byTopalovaforIndia(2007),

Sincethesewerealreadyindividualsatthe

employmentconditionsandhigherpay. papers countries. tradesharesto

BorusyakandJaravel(2018)

thegainsfromtradeareproͲpoorontheexpenditureside - asfoundbyFajgelbaumandKhandelwal(2016) - these effects After improvementsinpovertyrates. harderhitandtofinddifficultyin

3. Individualsleftbehindinindustrialcountries:disentanglingglobalizationandtechnology

isimportcompetition

10CDPBACKGROUNDPAPERNO.45

oflaborforcewellͲbeing. criticalforthenewtradeliteraturethat however, productivitygainsarefromwithinfirm andemploymentin whom wagesincreased. thesame: 4

Thesewere

peoplewhomoveoutofmanufacturingjobs standard approachthereisno 4 competition.Thewage percentincreaseinimportcompetitionwould whileoffshoring higher wastohighincomeregions

Thisdifference

thiswouldbeaneasytask. thosewhodidapplyforTAAaremadebetter fiftypercentofeligible 5

Therearenowa

joiningtheWTO. paperfocusing

Feenstra,MaandXu

5 andDevelopmentCentre25 th

AnniversaryConference.

12CDPBACKGROUNDPAPERNO.45

thatareinputsintoother 2006.

YetHarrisonandMcMillan(2011)

1978.
6 progress. showedthatfirmsmovingfactories decline.Mostofit - 12outofthe17percentagepointdeclineinlabordemandbetween1982and1999 - is thestructuralshiftinOECDcountriesaway thatbe?Becauseproductivityisrising.

4. TheConsequences:politicalpolarizationandstagnationingrowthofworldtrade.

ofvotingintheFrench showsthatafterfourdecadesofrisingtrade slowestgainsinglobalization.The

TradeOrganization,

theWTO(Chart4). 6 7

Votesfor

8

GordonHansonandcolleagues

9 knownastheelephantgraph suggestingmixedevidenceon "IsGlobalEqualitytheEnemyof

NationalEquality?"

10

5. ImplicationsforPolicy:Trade,TechnologyandLNOB

improvement.Populist onebehind? (seethe industrialcountrymarkets. thosepopulationsthatarebeingleftbehind. 7 8 9

DonaldTrump.

10

AccessedonDaniRodrik'swebsite.

14CDPBACKGROUNDPAPERNO.45

fromLDCsand

households,isonestrategy.Limitingprotectionistmeasuresinindustrialcountries - suchasantiͲdumpingand

countervailing measures - whichfallonLDCSaswellasvulnerablepopulationsinexportingcountrieswouldalso

PaulCollierinhisbook

andvulnerable populations.OneongoingweaknesswiththeWTOisthatthestrongestnegotiatingteams - comingfromtheleast vulnerablecountries - willtypicallycomeoutontop.FurthereffortstosupportWTOdelegatesfromLDCsarealso toadelegatefrom

WTOmembers.Thecostwouldalsobelowerthan

advanceddevelopingcountries. toatransferofthe

DFQF(dutyͲfreeandquotaͲfree)

mixed. small,andhavebeenfalling(known

Onereasonisbecausepreferenceerosionhas

butwhichareconsideredsensitivein

thehostcountry - suchasagriculturalcommodities(i.e.,sugar,rice)ortextilesandapparel.Secondly,preference

other'sgoods. agriculturalcommoditiesandapparel. policiestoensurethatthebenefits of explicitlyrestrictedorprohibitedby policiesbuttoquietly value globalizationhas ofredistribution, followingpoints (pages121Ͳ122): reflecting costpubliceducationat countries.Of

16CDPBACKGROUNDPAPERNO.45

toprovidea seemexantetobeacostlypolicysolution,I amoreprotectionistworld. reason agenda,bothintermsofopportunitiesaswell joblosses,polarization,new concerns, insteadofeliminate importanceofuniversal arisingfromnewtechnology. thereareothercomplementary

However,much

showthatsomeofthesesourcesareartificial - stemmingfromlabormarketlegislationwhichinhibitshiringand firing - GohandJavorcik negativelyaffectedbytrade,thoseworkers toworkersshouldbe tocreatenewjobsisdifficult,butnecessary.

18CDPBACKGROUNDPAPERNO.45

Bibliography

21-51.

Florida.

States."(2018).

Miracleand21st

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