3. GLOBALIZATION AND WORKING CONDITIONS: A FRAMEWORK FOR COUNTRY STUDIES
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collect data on trade in services. Therefore, while services are important, most studies focus on trade in goods and the remainder of this chapter will maintain that focus. Imports, exports, intraindustry trade, and total trade have different effects on workers, and each is considered in turn below. Imports
Typically, the main concern with imports is that they increase competition for domestic firms. Facing increased competition, domestic firms may feel pressure to lower prices, and to lower prices they must lower costs. Lowering (or not improving) working conditions is one way to reduce costs. An increase in imports, however, does not necessarily lead to rising import competition. If imports complement domestic production, imports can lower costs and encourage domestic production. If, however, imports are perfect substitutes for domestic products, rising imports will, at best, hamper growth of domestic firms and, at worst, eliminate domestic production. Furthermore, while lowering trade barriers is generally followed by increased imports, the amount that imports increase may not be a direct function of the tariff reduction. Therefore, there is no single link between imports and working conditions, or between imports and competition faced by domestic firms. The most accurate way to assess the competition posed by imports would be to compare the prices of imported goods with prices of identical domestic goods (box 3.1). The lack of appropriate data makes this a difficult task in practice. Another way to assess the degree of competition between domestic goods and imports is to estimate the elasticity of substitution between imported goods and domestic goods, which requires detailed consumption data (for consumer goods) and production data (for imported inputs used by domestic firms). The most practical approach is to compare the quantity of imports to the size of domestic production (commonly known as the “import penetration ratio”). When using this approach, industries must be defined as specifically as possible to prevent invalid comparisons. Exports
Changes in exports may be highly correlated with changes in imports. In fact, globalization is often thought of as a simultaneous increase in both, resulting in increased global “engagement” overall. Exports may increase with imports for several reasons. First, increasing foreign demand might coincide with domestic trade liberalization and the rise in
BOX 3.1 Quantities or Prices? Richardson (1995) made an important contribution to the trade and wages debate by using trade theory to raise concerns about the use of imports as a measure of globalization. One of his main points was that growth, or business-cycle expansion, could (and usually does) induce an increase in import quantities as a result of rising demand. He suggested that it is important to include changes in output prices in analyses of globalization, because an increase in imports accompanied by an increase in import prices could have positive implications for workers. It is, therefore, important to have an appropriate theoretical foundation when choosing variables.