Vox: Low-wage countries competition, intra-firm reallocation, and the quality content of French exports
With exports from low-wage countries like China on the rise, the question of what this means for trade and jobs in developed countries is a furious war of words. This column, using firm-level data for France between 1995 and 2005, shows that competition from low-wage markets actually boosts the sales of high-quality goods – but it concedes the benefits are not universal. ...
Consequences
Our results show that, over 1995-2005, a period characterised by the surge of low-wage countries in international markets,
- France has specialised in the production of higher quality goods.
- This specialisation has had a positive impact on France’s export performances, dampening the fall of its market share in foreign markets.
Beyond the effect on aggregate trade, such adjustments in specialisation patterns are likely to have important macroeconomic consequences. Hausmann et al. (2007), for example, discuss how countries that specialise in higher quality goods can enjoy better growth performances in the long run. However, changes in the structure of production can also have important transitory effects. In particular, if the relative content of production in skilled and unskilled labour is not the same depending on the produced quality, a reallocation of production in favour of high quality goods is likely to modify labour-market equilibria (see Verhoogen 2008).
This may be part of the story when it comes to explaining the rising wage premium and employment inequalities between skilled and unskilled workers observed over the last 20 years in most developed countries.
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