The project consists of two parts.
The first part of the project seeks to understand the relationship between trade, employment, and productivity in a low-income country setting. This topic is particularly timely in the context of recent bilateral free trade agreements and international trade negotiations, which aim to improve the trading prospects of low-income countries. The project studies the consequences of export opportunities induced by the U.S.-Vietnam Bilateral Trade Agreement for employment and productivity of formal enterprises in Vietnam. This export expansion led to a relative reduction in household business employment and to the reallocation of workers away from household businesses toward employers in the formal enterprise sector in industries subject to larger U.S. tariff declines.
The project studies the channels through which new export opportunities increased labour demand in the registered enterprise sector. The empirical framework combines longitudinal firm-level data from the annual Enterprise Survey that covers all registered enterprises in Vietnam, with variation in industry-specific declines in export costs induced by the trade agreement.
We analyse the impact of exporting on employment across heterogeneous employers and the relative contribution of incumbents and new entrants, such as private domestic businesses and foreign-invested firms, towards aggregate enterprise employment growth. This first component of the analysis focuses on the reallocation of individuals and firms between the household business and enterprise sectors, a margin of adjustment that has potentially important welfare and productivity implications in a low-income country setting but is rarely observed.
We find that reductions in U.S. tariffs applied on imports from Vietnam, as mandated by the U.S.-Vietnam Bilateral Trade Agreement, caused an expansion of formal manufacturing in Vietnam and the relative contraction of the state sector within it. At the industry level, both revenue and employment grew more quickly in industries that experienced greater U.S, tariff reductions. We find that the probability of a firm exiting between 2000 and 2004 is not related to U.S. tariff cuts. However, the firm entry is clearly related to the U.S. tariff reductions. Among continuing firms, revenue, employment, and revenue per worker within state-owned enterprises are not affected by the tariff cuts, but revenue and revenue per worker fell in continuing foreign-invested enterprises in response to the tariff cuts, while they expanded among private, domestic enterprises. In its second component, the project studies employment and productivity dynamics of firms in the enterprise sector using the Enterprise Surveys from 2000 to 2010.
For Richer, for Poorer on IMF’s Finance & Development