medium- and low-tech manufacturing sectors, the labor market gains through the income channel appear to be stronger (bottom panel). Higher forward GVC participation in mining also shows a strongly positive association with labor incomes (but not employment). Both forward and backward GVC participation show a negative correlation with employment (but not labor incomes) for agriculture/fishing and business services. Increases in agricultural or business services exports in MICs possibly go hand in hand with laborsaving skill-intensive machinery and technology, thus reducing the demand for workers.<sup>16</sup> Additional analysis by region is shown in Appendix Figure 9.4.

# 2.4 How are trade-job linkages characterized in lower-income countries?

In LMICs, manufacturing exports – especially of low-tech manufactured goods – are associated with larger employment increases than exports within agriculture or mining. This section focuses on the sample of 37 LMICs in EAP, SA, LAC, MENA and SA from the ETD database, differentiating between commodity exporters and countries specialized in limited manufacturing (see Appendix 2). For commodity exporters, total goods exports show a positive association with within-sector employment, although it is very small (coefficient of 0.03 percent). The link is insignificant in agriculture which is land-intensive, but positive in both mining and manufacturing, with a slightly larger coefficient for the latter (Figure 6). For countries specialized in limited manufacturing, exports show a negative relationship with employment in agriculture, possibly driven by more intensive use of agricultural machinery in such countries complementing the increase in land use. By contrast, there is a positive and larger export-employment link in low-tech manufacturing.

However, the link between low-tech manufactured exports in lower-income countries and job creation is substantially smaller than for the full sample of HMICs, possibly driven by the stronger role of informality. A 10 percent increase in exports of low-tech manufactured goods in LMICs specialized in limited manufacturing is associated with a 1.3 percent rise in employment – both formal and informal – within sectors (Figure 6). Compared with the sample of HMICs (Figure 2), the elasticity is only about onethird their magnitude. This can be explained by the fact that informal workers account for a large portion of employment in lower-income countries due to the lack of unemployment benefits. Export expansion thus leads to substitution effects, where workers move from informal to formal employment (including within sectors) resulting in lower net gains for overall employment numbers. As shown in Appendix Figure 9.5, export growth of goods and services over the period 1991-2019 is indeed positively correlated with increases in the share of paid (wage and salaried workers) in total employment across a large set of countries.<sup>17</sup>

> 16 Examples for labor-saving technology in agricultural production include tomato harvesters, shake-and-catch systems to harvest tree nuts, and wine grape harvesting machines. In Asia and Africa, agricultural production also increasingly relies on outsourced services providers of agricultural machines such as tractors (Christiaensen, Rutledge, and Taylor 2020). A similar argument could be made for business services exports which increasingly depend on information technology (e.g., travel services exports now rely less on travel agents).

17 Studies assessing local labor market effects of exports for South Asia and Mexico do not find any effect on the average employment rate, but confirm a reduction in informality (e.g., Artuc et al. 2019, Robertson et al. 2020, Vazquez and Winkler 2023). Second, a large number of manufacturing jobs in SSA have been created in the informal sector. A study by Kruse, Mensah, Sen, and de Vries (2023) based on the same ETD dataset suggests that these SSA countries experienced a ‘renaissance’ of their manufacturing employment share between 2000 and 2018, driven by unregistered firms that likely serve domestic or regional demand. On the other hand, Diao, Ellis, McMillan, and Rodrik (2021) find that large manufacturing firms in SSA are productive and participate in GVCs, but do not expand employment. The large role of informal activity in creating jobs may be rooted in differences in the enabling environment, a bias against low-wage workers in GVCs, or a combination thereof. A recent study suggests that while GVC participation and manufacturing output shares are positively associated in a large sample of 91 countries, this is driven by HMICs and is insignificant for many low-income countries many of which being commodity exporters. The study 10