Abstract
This paper considers the sources of employment demand in Asian economies. Using data from the World–Input Output Database, I examine the relative importance of domestic and foreign demand in generating employment. Despite some degree of heterogeneity across the sample, domestic demand is found to be the major driver of employment in all cases. Further, the relative importance of final and intermediate exports in generating employment varies by economy, with some economies relying on intermediate exports to generate employment to a greater extent than others, reflecting their importance as suppliers of intermediate inputs in global value chains, while others rely to a greater extent on final exports, reflecting their role as assemblers within global value chains. Considering developments over time, I find that employment is driven by two offsetting factors: (i) final demand (either domestic or foreign) and (ii) labor productivity, with changes in interindustry structure also being important in the case of intermediate exports.
Highlights
International trade and the globalization of supply chains have been important drivers for the growth and development of a number of economies in Asia and beyond, most notably the People’s Republic of China (PRC)
The results of the analysis indicate that domestic demand is the major driver of employment in all six economies, albeit to a lesser extent in some economies
The first term captures the impact of changing labor productivity on employment, the second captures the impact of changing value added to gross output ratios, the third captures the impact of changes in technical coefficients, and the final term captures changes in foreign final demand
Summary
International trade and the globalization of supply chains have been important drivers for the growth and development of a number of economies in Asia and beyond, most notably the People’s Republic of China (PRC). A number of these papers consider this relationship in the context of the PRC, with Feenstra and Hong (2010) using input–output analysis to estimate the employment effects of exporting. Timmer, and de Vries (2015) adopt a similar approach to identify the direct and indirect employment effects of exports in the PRC Their results indicate that between 1995 and 2001, rapid growth in foreign demand was offset by large increases in labor productivity, with the result being that foreign demand had essentially no effect on net employment. In a recent paper, Portella-Carbo (2016) extends this kind of analysis to consider the super-multiplier effects of international trade In his model, trade impacts employment in a manner similar to the studies mentioned above, but has additional impacts by stimulating household consumption, private business investment, and the production of intermediate goods.
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