Non-tradable Sector Research Articles

Sectoral credit reallocation: An excessive bank risk-taking explanation

This paper develops a theoretical model to provide an alternative explanation for the credit to nontradable sector growing faster than credit to tradable sector, after a US expansionary monetary policy, based on an excessive risk-taking channel. This is, a reduced foreign interest rate decreases bank default probability, which in turn diminishes banks’ incentives to take excessive risk. This produces a reallocation of loan supply to nontradable sector since tradable loans are riskier. Using monthly sectoral credit data at the bank level for the Peruvian economy in the 2004–2019 period, we find evidence of the excessive bank risk-taking channel on sectoral credit reallocation.

Government employment and local multipliers in Greek municipalities

This paper studies the impact of the remarkable increase in the share of public employment on the private sector across 156 Greek municipalities using Census data (1981–2011). To capture causal effects, we implement an instrumental variables approach, based on a shift-share design. We find that an additional job in the public sector creates nearly 0.7 jobs in the non-tradable sector (construction and services), whilst no significant effects are detected for the tradable sector (manufacturing). The findings appear to be robust to different estimation strategies, spillovers from contiguous regions, and to the inclusion of confounding factors. Importantly, we document that the most recent decline in the number of public servants did not significantly affect the private sector.

CO2 The Structural Conditions for the Expansion of COVID-19 in Peru

Peru is one of the most affected and infected countries by COVID-19. The expansion of the virus could not be contained by lockdowns and states of emergency. The re-opening of the economy increased the expansion of COVID-19. We argue that the role of Peru in the international division of labor is not only the structural condition for the persistence of labor precariousness in the country, but also the principal cause for the expansion of COVID-19 in Peru. Labor precariousness and the expansion of COVID-19 are the expressions of the country’s economic and business structure. An economic structure heavily dependent on the non-tradable sectors and a business structure dominated by micro business undertakings, characterized by low productivity levels, do not permit the eradication of precarious labor conditions as economic growth hinges on economic progress abroad and precariousness is the source of profit of micro companies. The persistence of labor precariousness impedes the containment of COVID-19. Labor precariousness expressed in wages at the subsistence level and the lack of labor stability in the formal sector, in combination with the structural character of informality have been the catalysts for the expansion of the virus. We demonstrate that COVID-19 is not a democratic virus but a class virus. For Metropolitan Lima, districts with a more than average rate of informality have also a more than average rate of COVID-19 infections. The neoliberal development model has been responsible for the incapacity of the government to implement measures in accordance with the country’s social and economic structure that might have contained the expansion of COVID-19. This model is the expression of Peru’s function in the globalized world, the relation between this role and the country’s economic and business structure, the functionality of the extractive development model for the Peruvian State, and the correlation of class forces within and outside the state apparatuses. Keywords: Peru, COVID-19, labor precariousness, international division of labor, neoliberal development model

Does the Volatility of Oil Price Affect the Structure of Employment? The Role of Exchange Rate Regime and Energy Import Dependency

The volatility of oil price as a key energy resource for modern economies has a significant impact on the macroeconomic situation. In addition to affecting aggregated production, consumption, employment and inflation, oil shocks can affect the economy in a more nuanced way. One consequence of the turmoil in the oil market may be a shift in the employment structure between the tradable and non-tradable sectors, which we investigate in this paper. The aim of this study is to test how oil price volatility affects the structure of employment in Central and Eastern European countries. Our main hypothesis is that oil price volatility causes a temporal employment reallocation between tradable and non-tradable sectors. To verify this assumption, we created Interacted Panel VAR (IPVAR), which showed that the shocks of oil price volatility affect the employment structure and this impact is conditioned by the level of dependence on energy imports and the exchange rate regime. The constructed impulse response functions showed that, in general, oil price volatility causes a temporal fall in relative employment in the manufacturing (tradable) sector. For periods of an above-average import of energy, the exchange rate regime does not matter for the response of the structure of employment. Inversely, when countries are less dependent on imports of energy, the exchange rate regime matters for shock absorption—for floats, oil price shocks cause a temporal fall in relative employment in manufacturing, whereas for pegs, there is a slight relative increase in employment in manufacturing.

Structural transformation away from agriculture in growing open economies

AbstractUnderstanding how and why economies structurally transform away from agriculture as they grow is crucial for developing sensible growth strategies and farm and food policies. Typically, analysts who study this and related structural change issues focus on sectoral shares of gross domestic product (GDP) and employment. This article draws on trade theory to focus as well on exports. It also notes that the trade costs of some products are too high at early stages of development to make international trade profitable, so a nontradables sector is recognized. The general equilibrium model presented in the theory section provides hypotheses about structural transformation in differently endowed open economies as they grow. Those hypotheses are tested econometrically with a new annual endowments dataset covering 1995–2018 for more than 130 countries. The results are consistent with long run de‐agriculturalization in the course of national economic growth in terms not only of sectoral shares of GDP and employment but also of exports. We find those shares are not significantly affected by either differences across countries in relative factor endowments or relative rates of sectoral assistance from government; but the agricultural GDP and employment shares are higher the higher is the share of agriculture in national exports.

RETRACTED: Foreign inflows, commercial law, and dutch disease: Evidence from developing economies

It is commonly believed that developing markets require inflows of foreign capital to achieve their growth targets; however, recent research has shown that these inflows are either ineffective or even harmful to the economy. A surge in foreign inflows, such as foreign aid, remittances, and foreign direct investment, into developing markets, particularly, have been connected to the Dutch disease hypothesis. A sharp rise in such inflows will stimulate real exchange rate in receiving nations due to the uptick in the non-tradable sector and the downturn in the tradable sector. The purpose of this research is to investigate, using quantitative approaches, the variations of real exchange rate adjustments that occur in response to official development assistance, foreign direct investments, and international remittances flowing into developing markets. To investigate the onset of Dutch Disease over the period 2001–2020, this analysis makes use of panel data estimation techniques in the form of fixed and random effect models The findings of a substantial amount of econometric investigation revealed that Dutch Disease is present in developing countries. The scope of the study has been broadened to include an investigation of the expansion of both tradable and non-tradable industries. According to the findings of this study, larger inflows of foreign capital slow growth in the tradable sector (the industrial sector), while simultaneously boosting growth in the non-tradable sector (Service sector).

House prices, collateral effects and sectoral output dynamics in emerging market economies

This paper studies the effect of house prices on sectoral output in emerging market economies, focusing on the role of collateral and borrowing dynamics. Using data from Brazil, we first show that an increase in house prices contributes to higher growth in nontradable sector output, whereas it has no effect on tradable sector output. Then, we study the model dynamics generated by shocks to housing demand in a two-sector small open economy real business cycle model. The results show that housing demand shocks lead to a sectoral reallocation by inducing an expansion in the nontradable sector and a contraction in the tradable sector. The model successfully generates the comovement we observe in the data, matching the strong positive correlation of house prices and nontradable output. We also study the importance of collateral effects for the model dynamics and show that the collateral channel is key to generating the relationship between house prices and sectoral output observed in the data.

Pigouvian taxes to internalize environmental damages from Chilean mining−A computable general equilibrium analysis

In several countries, mining taxes are applied as a mechanism to collect resources but without adequately evaluating their economic impacts. From a theoretical perspective, the implementation of royalties can be justified in the non-renewable nature of mining resources. In contrast, Pigouvian taxes aim to make productive activities internalize their environmental damages. This study illustrates the general equilibrium effects on the Chilean economy of replacing the current royalty on copper mining with Pigouvian taxes, considering various environmental damages. For the above, a computable general equilibrium model is developed and calibrated with a Social Accounting Matrix base year 2016. The results show that the internalization of all environmental damages would generate a significant drop in mining activity and electricity generation, contributing to reducing greenhouse gas emissions . Also, it is observed that the fall in GDP and increase in the real exchange rate would modify the production of other tradable and non-tradable sectors, benefiting non-copper export sectors. The fall in economic activity reduces the payment to productive factors, although the impact is greater on capital and skilled labor. The fall in income is more remarkable in the richest households than in the poorest households, which improves income distribution but increases poverty. Finally, the results on poverty reflect the need to implement monetary transfers to the poorest households.

Opening of high-speed rail and the consumer service industry: Evidence from China

This paper studies the impact of high-speed rail (HSR) on the consumer service industry. Using data from 291 prefecture-level cities in China for the 2003–2019 period, we show the following: First, the opening of high-speed rail causes a 8.38% increase in consumer service employment. Second, it is found that the promotion effect of high-speed rail on the consumer service industry is mainly reflected in three industries: the wholesale and retail industry; the accommodation and catering industry; the culture, sports and entertainment industry. Third, we find that the city heterogeneity in the effect of HSR. The opening of HSR increases employment within the large cities’ consumer services sectors. Our findings demonstrate that transportation infrastructure has an obvious employment effect, which will not only affect the tradable sector but also promotes the growth of the non-tradable sector.

ANALYSING THE EMPLOYMENT EFFECTS OF THE EXCHANGE RATE, FOREIGN DIRECT INVESTMENT AND TRADE OPENNESS ON SOUTH AFRICA’S NON-TRADABLE SECTORS

Mounting assertions of the increased benefits of foreign trade integration, in terms of increased wages and labour, as well as factor productivity and resource reallocations, are accompanied by subsequent concerns of coexisting job destruction, particularly for countries with evidently rising unemployment and poverty levels. Such is the case for a post-apartheid South African economy, ravaged by persistently high unemployment rates amid increased trade liberalisation. In drawing meaningful inherences, this study examined the effects of South Africa’s trade openness, the real effective exchange rate and foreign direct investment (FDI) on job creation or employment in selected non-tradable sectors. A quantitative approach was used, with the aforementioned trade-related factors as explanatory variables. Employment in the non-tradable sector’s construction, finance, and the wholesale and retail trade sector served as dependent variables. A quarterly dataset from 1995Q1 to 2021Q1 was employed. While the standard Autoregressive Distributed Lag (ARDL) model was used to gauge short-run and long-run relationships. Further econometric methods such as the correlations analysis were conducted to obtain additional understanding of the nature of the set variables. Findings showed that trade liberalisation effects induce varying implications on employment in the considered non-tradable sectors, perhaps due to idiosyncratic characteristics in the nature and operational structure of each sector. Trade openness was shown to have exhibited significant long-run implications on job creation in all the sectors, whereas the parameters of the rest of the explanatory series were not significant in the long-run. Results further showcased mixed short-run effects of trade factors on employment in all sectors, with significant parameters for the real effective exchange rate and trade openness with employment in the construction sector. Including significant short-run relationships for the real effective exchange rate with employment in the finance sector. Significant parameters for employment in the wholesale and retail trade sector with FDI and the real effective exchange rate were established. Further inferences were made in expounding on the established dynamics. Article history: Received 8 Ferbruary 2022; Revised 3 May 2022; Accepted 15 May 2022; Available online 30 June 2022; Available print 30 August 2022. JEL Classification: E24, F16, F31, O49

Impact of uncertainty and exchange rate shocks: Theory and global empirics

This paper offers two points on the impact of uncertainty and exchange rate shocks. (1) A conceptual model where behavioural frictions – rational inattentiveness and bounded expectations – interact with uncertainty, generating aggregate fluctuations. Central banks can target these behavioural frictions to stabilise output and prices. (2) Empirical findings from a panel of advanced and emerging economies. Output and inflation slow in response to uncertainty shocks. Government bond yields moderate and exchange rates depreciate, suggesting within-country and between-country flight-to-safety respectively. Exchange rate appreciation shocks generate similar responses. The Malaysia-specific analysis finds divergent responses in employment and output, likely reflecting compositional effects in more productive tradable and less productive non-tradable sectors.

Labor market effects of technology shocks biased toward the traded sector

Our VAR evidence for OECD countries reveals that the non-traded sector alone drives the increase in hours worked following a technology shock that increases permanently traded relative to non-traded TFP. The shock generates a reallocation of labor toward the non-traded sector which contributes to 35% of the rise in non-traded hours worked. Both labor reallocation and variations in labor income shares are found empirically connected with factor-biased technological change. Our quantitative analysis shows that a two-sector open economy model with flexible prices can reproduce the labor market effects we document empirically once we allow for imperfect mobility of labor, a demand for home-produced traded goods which is elastic enough w.r.t. the terms of trade, and factor-biased technological change. When calibrating the model to country-specific data, its ability to account for the cross-country reallocation and redistributive effects we estimate increases once we let factor-biased technological change vary between sectors and countries.

Does oil wealth matter to female labour force participation: New evidence from the oil-intensive economy of Saudi Arabia

The study aims to examine Ross's (2008) hypothesis providing new empirical evidence by considering the oil intensive country of Saudi Arabia. Using an autoregressive distributed lag (ARDL) bounds test, we identified that oil production correlates negatively with female participation in the labour force, supporting Ross's argument that in countries rich in oil production there is a resulting lack of female representation in the labour force. Our results remain robust when using alternative measures of oil resources. In addition, by sector our empirical investigation shows that while oil wealth hinders female employment in the tradable sector (industry), it fosters female employment in the non-tradable sectors (services) of the Saudi economy. Thus, the findings suggest that the harmful impact of oil wealth on female employment in Saudi Arabia is more pronounced in the industry sector than in services. Great attention needs to be directed by government to adopt economic strategies that focus on developing manufacturing-based industries coupled with greater expansion in the services sector, apart from oil activities to create wider employment opportunities for females.

Housing booms and H‐2A agricultural guest worker employment

AbstractThis paper examines the effects of changes in housing demand on H‐2A employment within commuting zones from 2001 to 2017. Agricultural employers who demonstrate that no workers in the domestic labor market are willing or able to perform a seasonal or temporary farm job can apply for certification to hire guest workers through the H‐2A visa program. H‐2A employment grew more than 450% between 2001 and 2019 from 45,000 to 258,000. This is one of the first papers to econometrically examine causal factors that contributed to the growth of H‐2A employment. We find that a 1% increase in housing demand leads to a 0.40%–0.97% increase in H‐2A employment. We also show suggestive evidence that changes in housing demand affect H‐2A employment through shifts in the demand for workers in nonfarm industries that pull workers from the agricultural sector. Consistent with previous literature, we show that positive housing demand shocks lead to increased employment in construction and other nontradable sectors that traditionally hire immigrant workers. We also find positive effects of housing demand on local farm wages, consistent with an inward shift in the local farm labor supply during housing booms.

Optimal Monetary Policy under Balance-Sheet Effects on the Non-tradable Sector in a Small Open Economy

The choice of an exchange rate regime is crucial in small open economies (SOEs) with a dollarized financial sector. While the traditional Mundell–Fleming model supports a floating exchange rate, evidence shows that central banks frequently intervene in exchange markets. One of the reasons for these interventions is the consequences of large depreciations that could trigger negative balance-sheet effects. This paper extends the literature about the optimal monetary policy in SOEs, by considering a heterogeneous hedge across tradable and non-tradable sectors. Our findings support a ‘leaning against the wind’ policy as an optimal response to negative external shocks. This result is present even if only one sector of the economy faces credit constraints. We show that the vulnerability of the economy to large negative external shocks depends not only on the overall leverage, but also on the distribution of foreign currency debt across economic sectors.

The Labor Market Impacts of Universal and Permanent Cash Transfers: Evidence from the Alaska Permanent Fund

Since 1982, all Alaskan residents have received a yearly cash dividend from the Alaska Permanent Fund. Using the Current Population Survey and a synthetic control method, this paper shows that the dividend had no effect on employment and increased part-time work by 1.8 percentage points (17 percent). A calibration of microeconomic and macroeconomic effects suggests that the empirical results are consistent with cash stimulating the local economy—a general equilibrium effect. Nontradable sectors have a more positive employment response than tradable sectors. Overall, the results suggest that a universal and permanent cash transfer does not significantly decrease aggregate employment. (JEL E24, H24, H75, I38, J22, R23)

ANALISIS POTENSI MAKRO SEKTORAL KOTA JAYAPURA DAN ARAH PENGEMBANGANNYA DIMASA MENDATANG

This study generally aims to provide a clear image of the sectoral macro economic potential in Jayapura City. More specific, the objectives are: (a) determine and analyze base sectors in Jayapura City, (b) identify and analyze the performance of economic sectors in Jayapura City in order to know the sectors that have competitive advantage and specialization, (c) establish and analyze the typology of socio-economic potential in Jayapura City and compare it with some other equivalent regency, and (d) establish the direction of the leading commodity based on sectoral development potential. Some analysis tools of macro regional performance indicators are descriptive statistics, LQ, SSA, MRP, Overlay Analysis and Composite Performance Index. Based on the result analysis, it is shown that the economic development Jayapura city has always rested on the potentials that are non-tradable sectors. The non-tradable sectors are hotels, trade, construction, restaurants, transportation, banking, and so on which most of the base is not on the local economy. While tradable sectors that have a very strong local base sectors eg. food crops, fisheries, livestock, micro industrial, become complementary and inferior sectors in Jayapura City economy. Due to the absurd economic development like this, the non-tradable sectors are always dominant over the tradable sectors and never once happened that a fundamental change in the economic structure, causing the distribution of income, employment absorption, and business opportunities, all experiencing high inequality. To improve the conditions of economic performance such as this it is necessary to establish potential development strategy of tradable sectors to lead commodity based that is in an effort to improve the marketing and administration, expanding a partnership in the development of leading commodities, improve the quality of human resources, production, capital and value added commodity, as well as institutional strengthening economic commodity.

Non-traded goods, factor market frictions, and international capital flows

The canonical one-sector model over predicts international capital flows by a factor of ten. We show that introducing a non-traded goods sector can reconcile the differences between the theoretical predictions and the observed flows. We analyze the quantitative impact of the non-traded sector using a calibrated model of a small open economy, in which non-traded goods are used in consumption and investment, and need capital and labor to be produced. The model features international frictions directly affecting international borrowing and lending, as well as domestic frictions that limit the scope of inter-sectoral reallocation of capital and labor. We find that: (1) the impact of domestic frictions on the size of international capital flows is similar to the impact of international frictions, and (2) the median elasticity of capital flows with respect to international frictions in the two-sector model with costly inter-sectoral reallocation is about 50-60% lower than that same elasticity in the one-sector model.

Import competition and gender differences in labor reallocation

We study gender differences in the labor market reallocation of Peruvian workers in response to trade liberalization. The empirical strategy relies on variation in import competition across local labor markets based on their industrial composition before China entered the global market in 2001. In contrast to much of the existing literature, we find that import competition did not have persistent negative employment effects on men or led them to sort into the non-tradable or informal sectors. The adverse effects on the employment of low-educated women in the tradable sector, however, persist over time leading them to sort into the non-tradable sector or out of the labor force. The results are consistent with a mechanism in which gender occupational and industrial segregation leads to a widening of the gender gap in employment.

Preference shifts and wage inequality

This paper analyzes how preference shifts affect wage inequality. We take the Cobb–Douglas preference, the Dixit-Stiglitz preference and the quasi-linear preference into account, and find that there exists preference-driven wage inequality. In the two-type labor (i.e. skilled labor and unskilled labor) models, when the preferences of consumers for skilled products are strengthened, wage inequality will be widened (resp. narrowed down) if there is a relatively low (resp. high) capital intensity in the unskilled sector. We also build a three-type labor (i.e. high-skilled labor, medium-skilled labor, and unskilled labor) model and a model with a non-tradable unskilled sector to strengthen the explanatory power. The role of preferences shifts in changing wage inequality is overlooked by the existing literature.