Trade openness, real exchange rates and job reallocation: evidence from Belgium

Italo Colantone

doi:10.1007/s10290-012-0132-3

Abstract

This paper investigates the impact of real exchange rate movements on job reallocation at the industry level. The analysis focuses on the manufacturing sector of Belgium, using data for 82 NACE 3-digit industries, over the time span 1996–2002. I find that real exchange rate changes do have a significant impact on job flows, and that this impact is magnified by increasing levels of trade exposure. In particular, a real appreciation is found to lower net employment growth through higher job destruction, while job creation is not significantly affected. These results are in line with previous empirical evidence on the United States, and differ from earlier findings for France and Germany, where the adjustment to real exchange rate shocks has been found to occur mainly through the job creation margin. I suggest that these differences may be explained by the fact that Belgium is a small open economy.

Highlights

In today’s global economy, domestic firms and workers in each country have become increasingly sensitive to international competition
This paper has investigated the impact of real exchange rate (RER) movements on job flows, focusing on the manufacturing sector of a small open economy characterized by significant labor market rigidities: Belgium
I have found that real appreciations have a negative impact on net employment growth through an increase in job destruction, while job creation is not significantly affected

Summary

Introduction

In today’s global economy, domestic firms and workers in each country have become increasingly sensitive to international competition. This has induced the emergence of serious concerns about the labor market’s drawbacks of globalization. Recent reports are showing that China has been displaying a substantial appreciation in real terms lately, due to the relatively high increase in wages, emphasizing the importance of looking at real exchange rates, besides nominal ones.. This paper studies the impact of real exchange rate movements on net and gross job flows at the industry level, focusing on the manufacturing sector of Belgium, for the time span 1996–2002 Recent reports are showing that China has been displaying a substantial appreciation in real terms lately, due to the relatively high increase in wages, emphasizing the importance of looking at real exchange rates, besides nominal ones. This paper studies the impact of real exchange rate movements on net and gross job flows at the industry level, focusing on the manufacturing sector of Belgium, for the time span 1996–2002

Objectives

Findings

Discussion

Conclusion