The Challenge of Asia Pacific Trade for UK Industry and Employment

Award Number: L324253045
Award Holders: Dr. P. W. Wright, Professor D. Greenaway, Mr. R. C. Hine
Period of Report 1.1.96 - 31.12.96
Amount of Award: £49,930

Aims and Methods of Research:

The aims of this project are to:
  • gain insights into the process of labour market adjustments associated with trade expansion involving trading partners from Pacific Asia.
  • gain insight into the responses of corporations competing with Pacific Asia imports on the UK market.
  • construct an integrated database of production, trade and labour market information both to facilitate the present research and to provide a resource for future researchers.
  • The methods being deployed are primarily quantitative and involve extensive use of panel data analysis.

    Highlights of the Research and Important Findings

  • Examination has been made of the impact of trade with the Pacific Asian Economies on the United Kingdom labour market.
  • Preliminary results indicate that increases in import penetration have a depressing effect on UK wage growth. This impact is particularly pronounced if the imports originate from the Pacific Asian Economies.
  • Publications and Dissemination

  • David Greenaway, 'Current issues in trade policy and the Pacific Rim', International Economic Association Conference, Sydney, July 1996. Forthcoming in 'International Trade Policy and the Pacific Rim.' J.Piggott and A. Woodland (eds.): Macmillan (1997)
  • David Greenaway and Peter Wright, 'Trade Liberalisation and Adjustment', Economic Society of Australia Annual Conference, Canberra, September 1997.
  • Robert C. Hine and Peter Wright 'Europe and the Orient Express- the impact of East Asian trade on the European Economies.' Forthcoming in 'The European Union and East Asia: A developing relationship.' R.Strange and J.Slater (eds.): Routledge (1997a).
  • Robert C. Hine and Peter Wright ''Trade and manufacturing employment in the United Kingdom.' Forthcoming in 'IESG Annual Conference Volume.' J. Borkakoti (ed.) (1997b)
  • Robert C. Hine and Peter Wright 'The impact of changing trade patterns on the demand for labour in the United Kingdom.' in Integration and Specialisation, University of Coimbra Press (1996).
  • Robert C. Hine 'Fortress Europe? Regionalism in the European Community and its impact on non-member countries.' Presented at the fourth Tamkang International conference on European Studies, Tamkang University, Taiwan, September 1996.
  • Robert C. Hine 'The APEC Dividend: assessing the results of concerted unilateral liberalisation.' (Discussant) European Institute for Asian Studies Conference, Brussels, October 1996.
  • Engagement with Potential Users

    The user communities most appropriate to this research are the policy making community and the wider academic community. These have been engaged through the following:

  • The researchers have presented at, and participated in, a number of Conferences over the year. These included an International Economic Association Conference on 'Trade Policy Developments in the Pacific Rim'; an International Economics Study Group Conference on 'Trade and Employment'; an Economic Society of Australia Conference; Europe-Asia Conferences in Taiwan and Brussels. These all involved participants from Government Departments in the UK, Australia, Korea, Taiwan and the European Commission.

  • A range of bilateral contacts development through CREDIT, in DTI, HM Treasury, FCO, OECD and World Bank, have been kept aware of the work.

  • Given the nature of the work, and ESRC's desire for international linkages, we have endeavoured to build links with overseas researchers working on similar issues. This has developed successfully and includes Neil Vousden (Australian National University), Steve Matusz (University of Michigan), Alan Woodland (University of Sydney), Johan Torstensson (Lund University).

  • Strategies developed thus far will be exploited further. However, now that the project is yielding up interesting and policy relevant outcomes, two further initiatives will be progressed in the next six months. First a mini-symposium on 'Trade and Employment' has been agreed for The World Economy; second a briefing paper on key findings will be disseminated widely in key Government Departments.

    Detailed Progress

    The fundamental question motivating this work is: does trade with Pacific-Asia countries have different consequences for labour market adjustment in the UK than trade with other partners (for example in the EU)? Differences may manifest themselves in terms of core unemployment, changes in unemployment, changes in skill mix and so on. From a policy standpoint this is a crucially important question. It has failed to attract the attention it should have done, in part because it is analytically complex but more importantly because the data requirements are so demanding.

    The first task in this project was therefore to marry trade, labour market and industrial organisation data into a large integrated database which would facilitate the evaluation of labour market adjustment. This has been accomplished by drawing trade data from the OECD database (classified according to the SITC), the Labour Force Survey (classified according to the SOC) and the Census of Production (classified according to the SIC). Compilation of this database is a major achievement of the research and we now have at our disposal a unique and valuable asset

    Having prepared the test-bed work focused on the formulation and estimation of models of employment change. Preparatory work took the form of 'deploying the well known 'accounting approach'. Essentially this attempts to attribute employment changes in a given economy or sector to changes in trade, changes in production and changes in demand. The key findings are reported in Hine and Wright. (1997b)

    The accounting approach has the virtue of simplicity. However, it also suffers from a number of serious deficiencies. In particular it is essentially static rather than dynamic and it fails to take any account of interactions between causal factors. Thus the key modelling strategy shifted to estimating dynamic equations for employment change and wage change using panel estimation techniques. This has progressed very satisfactorily indeed. Our database includes 167 industries, covers the period 1979 to 1991 and incorporates eight country groups. These are Japan, the Asian Tigers (Kong Kong, Singapore, Korea and Taiwan), the Asian Dragons (Malaysia, Thailand and Indonesia), China, all of South East Asia, the EU, USA and finally all imports to the UK. For each of these country groups, models of wage change have been estimated using various indicators of country specific, region specific import and export performance, indicators of industrial structure, production, labour force indicators and so on. To our knowledge this is the first work of this kind on UK labour market adjustment. Our preliminary findings with respect to wage determination indicate that increases in import penetration have a depressing effect on UK wage growth. This impact is particularly pronounced if the imports originate from the Pacific Asian Economies

    Current efforts are now focused on employment change and the econometric work is still on schedule for completion this summer. The database we have assembled offers enormous potential. In addition to using it on this project we have made it available to an ESRC funded research student at Nottingham who is working on a related issue. We have begun formulating a case for further funding to allow further work to be undertaken on this unique resource.

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