Product Standards, Exports and Employment An Analytical Study

Acharyya, Rajat (2004): Product Standards, Exports and Employment An Analytical Study. Published in: (2005)

Abstract

Through the process of globalization, trade dependence and interdependence of the developing countries have increased phenomenally than ever before. The characteristic of this late twentieth-century globalization process has been the new technological revolution that has led to a high rate of world exports of electronics and other high-technology products. This has marginalized most of the developing countries exporting largely the low quality and low value-addition manufacturing and primary products, barring a few exceptions like China, India and Mexico. The fruits of globalization have, therefore, been unevenly distributed so far across the developed and the developing countries. Moreover, whatever little growth in exports of medium technology products has been achieved by a few of them, is largely driven by outsourcing of low value-addition and lower-stage of activities by the foreign multinationals. Outsourcing of software services, rather than development of software packages, in India and assembly line for automobiles in Mexico are the two glaring examples. These activities may have boosted the total exports of these countries, but they have failed to generate any feedback effect on the rest of the economy in terms of skill formation, increase in overall productivity level and product diversification.

The possibility of achieving significant export growth by the developing countries has further been constrained by the quality regulations and environmental standards that are often in place on the imports by the advanced industrialized countries. These non-tariff barriers, the new face of protectionism in the twenty-first century, has forced the developing countries to alter their production structures and technology with far reaching implications for income distribution and employment opportunities.

These developments reveal a paradox of export-led growth and poverty reduction. To generate strong linkages and dynamic effects with rest of the economy, and to meet the challenges posed by the new set of regulations and standards, the developing countries must enhance their product quality and specialize in high value-addtion activities. But this raises the demand for capital, both human and physical, and displaces unskilled labour in the process. As a consequence, not only income inequality may be on the rise, as has already been observed in many parts of the developing world, but increased unemployment among the large number of unskilled workers is also on the card. All these contribute to weaken the positive impact of export growth on poverty alleviation.

This book makes an analytical study of these issues. With the new technological revolution in the West and new set of non-tariff barriers forthcoming on the exports of the developing countries, the export-led development strategy has now quite a different set of requirements and implications than it had ever before. It now requires a good understanding of why developing countries are historically the producers of low-quality and dirty goods and the policy implications thereof. At the same time it is to be understood to what extent changes in the production structures brought about by the quality regulations and environmental standards displace unskilled workers who have almost no alternative employment opportunities. These are the tasks that have been set out in this book.

• Item Type: MPRA Paper
• Language: English
• Keywords: Product Standards, Export Quality, Employment
• Subjects: F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade

References

Acharyya, R., 1995, “Protective effects of source-specific VER and global quota under oligopoly”, Keio Economic Studies, vol. XXXII, No. 2, 65-70. Bhagwati, J.N., 1965, “On the equivalence of tariffs and quotas”. In: R. Caves, et al, eds., Trade, Growth and the Balance of Payments, Rand-McNally. Bhagwati, J.N., 1982, “Directly-unproductive profit-seeking (DUP) activities”, Journal of Political Economy, 90: 988-1002. Davis, D., 1996, “Trade liberalization and income distribution”, NBER Working Paper No. 5693. Deardorff, A., 2000, “Factor Prices and the Factor Content of Trade Revisited: What's the Use?”, Journal of International Economics 50, 73-90. Feenstra, R., and G. Hanson, 1996, “Foreign Investment, Outsourcing and Relative Wages”. In: R. Feenstra, G. Grossman and D. Irwin, eds, Political Economy of Trade Policies. Essays in Honour of J.N. Bhagwati, MIT Press, MA. Harris, R., 1985, “Why voluntary export restraints are voluntary?”, Canadian Journal of Economics, 18: 799-809. Jones, R.W. and S.L. Engerman, 1996, “Trade, Technology and Wages. A Tale of Two Countries”, American Economic Review, 86: 35-40. Keynes, J.M, 1929, “The German transfer problem”, Economic Journal, 39: 1-7. Krueger, A. O, 1974, “The political economy of the rent-seeking society”, American Economic Review, 69: 291-303. Krugman, P.R., 2000, “Technology, Trade and Factor Prices”, Journal of International Economics, 50: 51-71. Kumar, A, 1999, ‘The Black Economy: Missing Dimension of Macro Policy-Making in India’, Economic and Political Weekly, March 20-26.

Leamer, E., 1995, “A Trade Economists's View of US Wages and Globalization”. In: S. M. Collins, eds., Imports, Exports and the American Worker, Brookings Institution Press, Washington DC. Leamer, E., 2000, “What's the Use of Factor Contents?”, Journal of International Economics, 50: 51-71. Marjit, S. and R. Acharyya, 2006, "Trade liberalization, skill-linked intermediate and two-sided wage-gap", Journal of Policy Reform, 9(3): 303-317, 2006. Metzler, L., 1949, “Tariffs, the terms of trade, and the distribution of national income”, Journal of Political Economy, 57:1-29. Ohlin, B., 1929, “The reparation problem: A discussion”, Economic Journal, 39: 172-173. Sanyal, K, 1983, “Vertical specialization in a Ricardian model with continuum of stages of production”, Economica, 50: 70-88. Xu, B., 2003, “Trade Liberalization, Wage Inequality and Endogemeously determined Non-Traded Goods”, Journal of International Economics, 60(2) 417-431. Zhu, S and D. Trefler, 2005, “Trade and Inequality in Developing Countries: A General Equilibrium Analysis”, Journal of International Economics, January, 21-48