Entangled ― Localized Effects of Exports on Earnings and Employment in South Asia

Very few studies focus on the growth of labor market opportunities that follow from exports. Entangled is one of the first to systematically examine the localized effects of long-run export growth in South Asia. The basic premise is that adjustment costs matter. If adjustment costs matter, then we would expect to see significant and persistent differences in wages across industries and regions. We would expect to see that exporting industries and regions tend to pay higher wages and that these differences would only slowly dissipate over time (if at all). We would expect to see that increases in exports would increase the demand for workers. An increase in demand for workers could increase either wages, employment, or both, depending on the ability and willingness of workers to switch industries and regions.If workers face high adjustment costs, the increase in labor demand from exports would be associated with higher wage growth, but not necessarily higher employment growth because workers would not move into expanding industries. As a result, firms would have to raise wages to attract the workers they need. Since expanding takes more time than contracting, we would expect to see the strongest positive wage effects over the longest time horizon because exports take longer to affect labor markets than import competition. The report evaluate these predictions using data from India, Sri Lanka, and Bangladesh. The results are consistent with the presence of very significant worker-level adjustment costs in South Asia and suggest that the gains from exports to date have still been modest.

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