Abstract
This paper addresses the effects of trade liberalisation on job flows. It studies the case of Ukraine where the sudden opening up of the economy to trade can be viewed as a quasi-natural experiment. We use disaggregated data on manufacturing industries and customs data on trade flows to account for shifting trade patterns after the disintegration of the Soviet Union and the Council of Mutual Economic Assistance (CMEA) trade regime. We provide, for the first time, evidence on job flows at the three-digit sector level in Ukrainian manufacturing and show that these flows are predominantly driven by idiosyncratic factors within industries. However, we also establish that trade openness does affect job flows differently across different trading areas. We find that while trade with Commonwealth of Independent States decreases job destruction, trade with the European Union increases excess reallocation mainly through job creation.
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Notes
In Poland and Hungary, economic reforms of the central planning system gave some autonomy to state-owned enterprises in the 1980s. Some of the Hungarian and Polish enterprises did have trade relationships with Western firms already in the 1980s as a consequence of these reforms (see eg Repkine and Walsh (1999) who study Polish enterprises). In the Soviet Union, on the other hand, where the Classical Planning System was less affected by economic reform throughout the Communist regime, the foreign trade monopoly of the state was not touched until the implosion of the centrally planned economy.
We observe this spectacular rise in trade flows in spite of the somewhat tortuous path of Ukrainian trade reforms, which are documented in Appendix B.
The results of these tests, not shown here, are available from the authors upon request.
Since the Derzkkomstat used the old classification of industries OKONKh (Classification of branches of national economy) till 2001, we converted five-digit OKONKh industries to the three-digit NACE sectors for our further analysis at the sectoral level.
We also eliminated sectors 205 (Manufacture of other products of wood), 233 (Processing of nuclear fuel) and 372 (Recycling of non-metal waste) because there is insufficient number of observations for sectoral analysis. All prison-based enterprises (about 170 establishments) were excluded from the sample.
We can distinguish only between state and non-state (including collective, private and foreign) ownership.
HS codes were also converted to the three-digit NACE sectors. In our study, we exclude sectors 296 (Manufacture of weapons and ammunition) and 362 (Manufacture of jewellery) because of non-availability of trade flows data for the whole interval from 1993 to 2000, and then we base our analysis only on sectors used in the manufacturing sample of the Derzhkomstat data set.
The large jumps of the openness measure for the CIS trade orientation in the upper half of the distribution in panel B of Figure 3 might seem implausible. They can be related to measurement problems in the early phase of Ukraine's independence when a prolonged hyperinflation plagued the country resulting in the reporting of possible very ‘false’ exchange rates. For the core of the analysis of the paper, these potential measurement problems in connection with the early years are, however, irrelevant, since in our estimations we use data going back only to 1994.
We determine the lag structure empirically with a general-to-specific approach to establish a more parsimonious representation of the data. Initially, we used two lags on all variables. We also estimated (1) with the growth rate of the real exchange rate rather than the level, and found no significant differences.
For background and a detailed discussion see Baltagi (1995, Ch.8). For an overview, see Bond (2002) and Hall (2003).
The results do not change substantially when we apply a finite sample correction to the two-step covariance matrix as shown in Windmeijer (2005).
Where possible, in addition to predetermined variables, we use the lagged differences and levels of real industrial output as instruments in our regressions.
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Acknowledgements
We thank John Haltiwanger and Peter Wright and the participants at the GEP Conference, Nottingham, June 2003, and the IZA-Upjohn-WDI conference on ‘Microeconomic Aspects of Labor Reallocation’, Kalamazoo, Michigan, August 2003, for valuable comments and insightful discussions. Comments by an anonymous referee and the editor of this journal have improved the paper considerably. This study was partially financed by the CERT-RWI project ‘Analysis of Labor Markets in Transition Countries Using Large Micro Data Sets’. Kupets is grateful to the ‘INTAS’ program for facilitating her stay in Edinburgh, during which the first version of the paper took shape.
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Christev, A., Kupets, O. & Lehmann, H. Trade Liberalisation and Employment Effects in Ukraine. Comp Econ Stud 50, 318–340 (2008). https://doi.org/10.1057/palgrave.ces.8100250
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DOI: https://doi.org/10.1057/palgrave.ces.8100250