economy’s structure. In addition, Figure 2 identified a three-way choice facing workers: migrate, stay, or exit. But in many low and middle-income countries, there are also other choices: enter the informal labor market, or consider self-employment. These choices—indicated by dotted lines in Figure 2— can have important social implications because working conditions can differ substantially between the formal and informal sectors.

# 2.2.2 Contrasting Country Experiences

More concretely, there is evidence that the local labor market effects of increased import competition are not uniform across countries, and that local conditions—labor market institutions, patterns of specialization in sectors and tasks, and available margins of adjustment—lead to substantially different outcomes. However, the local labor market impacts of trade integration remain relatively understudied in low and middle-income environments, in part due to difficulties collecting the necessary data.

To highlight how different outcomes can be even when the shock considered is similar in historical terms, it is useful to compare estimates of the impact of the “China Shock” from the US, Peru, and Ethiopia. These three countries importantly differ in their type of trade integration, with Peru specializing in commodity exports, Ethiopia in limited manufacturing GVCs, and the US in innovative GVC activities (World Bank 2020a). The discussion focuses on comparable reduced form estimates and leaves Caliendo et al. (2019) to one side, as it is a structural model. For the US, Acemoglu et al. (2016) estimate that US job losses from Chinese import competition over the 1999 through 2011 period were of the order of 2.0 million to 2.4 million people.<sup>4</sup> By contrast, Mansour et al. (2022) show that in the case of Peru, increased import competition from China did not lead overall to decreases in employment or informality for men, but did have adverse impacts for women because they tended to move into the non-tradable sector, where wages were lower, or leave the labor force entirely.<sup>5</sup> Even more strikingly, Ngoma (2022) finds that a one percentage point increase in Chinese import penetration in Ethiopia leads to a 15.2% increase in industry employment, because the dominant effect is to boost industrial performance by facilitating access to intermediates. The latter finding is in line with Ethiopia’s participation in limited manufacturing GVCs.

Similarly, several studies for low- and middle-income countries have examined the local labor market effects of exports rather than import competition using a comparable specification. Recent studies for China and Vietnam find a positive effect of exports on labor market outcomes at the subnational level (Erten and Leight 2019; McCaig 2011, McCaig and Pavcnik 2018). Other papers find that increasing exports per worker result in higher wages for workers generally and in declining informality in India and Sri Lanka (Artuc et al. 2019) and Bangladesh (Robertson et al. 2020). Vazquez and Winkler (2023) study the employment, income, migration and informality channels across Mexican municipalities and find that expanding exports per worker increased labor force participation, but not employment rates. Exports also raised total labor incomes, but not average labor incomes. These results imply a growing labor supply which they attribute to increased immigration and movement from the informal to the formal labor market following the export expansion. In contrast, a recent study on the Arab Republic

> 4 Even within high income countries, there is evidence of substantially different effects from the “China shock”: Dauth et al. (2017) find no significant impact on manufacturing employment in Germany, while De Lyon and Pessoa (2021) find negative effects for the UK, and Citino and Linarello (2002) find evidence of negative effects at a local level, but only small aggregate impacts. In the case of Japan, Hayakawa et al. (2021) find that the type of trade matters: there are negative effects of import penetration in the case of product-level competition, but positive effects of import penetration in upstream (input producing) industries.

> 5 This evidence squares up well with the findings of Ben Yahmed and Bombarda (2020) for Mexico, who show that tariff cuts increased the probability of working formally for both men and women in manufacturing, but led to a decrease in formality for women working in service sectors.

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