Labour quality and benefits reaped from global economic integration: An application of dynamic panel SGMM estimators

Abstract

This paper investigates the effects of educational levels – as a proxy for labour quality – on benefits reaped from economic integration by applying Arellano–Bond dynamic panel GMM estimators to panel data on 91 countries from 1970 to 2015. The results illustrate that labour quality plays a crucial role, enhancing the rate of labour productivity and exports. Importantly, labour quality also influences the impact of openness variables on benefits gained from integration. In particular, labour quality depresses the effects of trade openness on the rate of labour productivity that follow from convergence effects until trade openness is sufficiently high. However, the effects of labour quality on productivity growth do not depend on levels of financial openness. Furthermore, countries with high levels of trade openness gain fewer benefits from economic integration than those with low levels of openness. Our findings also provide evidence that rejects the hypothesis that high levels of labour quality accelerate the impact of trade openness on the rate of export; we found that the effect of labour quality on the rate of export does not depend on levels of trade openness. By contrast, labour quality significantly depresses the level of financial openness at all levels of openness. Therefore, policy-makers should focus on the linkages between labour quality and productivity and export performance in seeking to secure greater gains from economic integration.