Trade Liberalization, Firm Performance and Labour Market Outcomes in the Developing World: What Can We Learn from Micro-LevelData?



represents cross-sectional variation and the latter temporal variation of wit . Hence, σ2υ captures
uncertainty due to, e.g., wage volatility. Performing this decomposition shows that exporters and
import-competing firms are characterized by a higher transitory variance of wages, employment,
sales, prices and (to a lesser extent) profits. The authors also perform a regression analysis in
which the transitory component of firm-level variables is regressed on dummies for exporters and
import-competing firms, sectoral and regional dummies, and size. Estimation results show that in
most specifications the dummies for exporters and import-competing firms are positive, and they
are often also highly significant. These results suggest that, consistent with the authors’ prior,
exposure to international trade is associated with greater uncertainty due to higher volatility of
wages, profits and employment.

Consider now the potential pros of trade exposure. The authors focus, in particular, on training
and promotions. Their prior is that firms exposed to foreign competition have a greater incentive
to train their workforce in order to increase its productivity, thereby reducing the uncertainty
due to more volatile profits. At the same time, workers have an incentive to produce a greater
effort to obtain promotions, thereby reducing the uncertainty due to higher wage and employment
volatility. In this respect, data reveal that the share of workers engaged in training programs is
31% for exporters, 36% for import-competing firms and only 19% for protected firms. Further, the
percentage of workers being promoted in the firm’s ladder in 1999 equals 4% for exporting firms,
1.4% for import competing firms and 1.7% for protected firms.

The regression analysis performed by the authors shows that the percentage of trained workers
is positively and significantly correlated with the dummy for import-competing firms, even after
controlling for size and for sectoral and regional dummies. Further, they regress the probability of
a promotion on the dummies for exporters and import-competing firms. Estimation results reveal
that the former dummy is positive and significant, even after controlling for sectoral dummies, for
size and for a proxy of productivity growth.
32

32The authors also check the robustness of their results with respect to the methodology of estimation. In partic-
ular, they estimate the impact of trade exposure on uncertainty, training and promotions using a non-parametric

51



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