Global Production Sharing and Wage Premiums: Evidence from the Thai Manufacturing Sector

Abstract

The paper aims to promote a better understanding of the determinants of wage skill premiums in developing countries, with emphasis on the role of firm heterogeneity as well as global production sharing. An interplant, cross-sectional analysis of the Thai manufacturing sector is undertaken. Our key finding is in line with the theoretical postulation of the established firm heterogeneity literature—i.e., tariff cuts have different effects on firms depending on the mode by which firms are globally integrated. We also find that outsourced economic activities to developing countries are skills intensive. Our finding has implications for the management of economic globalization. First, reluctance to continue trade policy reform could inflate demand for unskilled workers and eventually jeopardize the competitiveness of exporting firms. Second, participation in global production sharing provides not only lucrative business opportunities, but also the chance to move up to a higher rung on the technology ladder. In addition, increasing economic globalization by participating in global production sharing could bring adverse effects to unskilled workers. Social safety net programs must be put in place to mitigate such adverse effects.