# 1. Introduction

Economists are largely in agreement that, at least at the aggregate level and over the long term, trade plays an important role in driving economic growth, job creation, and wage growth (Dutt, Mitra and Ranjan 2009; Hollweg et al. 2014; Brown et al. 2016). Recent empirical evidence, however, finds no impact of participation in global value chains (GVCs) on employment in low- and middle-income countries (LMICs) (Pahl and Timmer 2020). Empirical assessments across countries are still scarce, in large part because of the difficulty to establish causality in such models. Another strand of literature highlights the negative effects of import competition from low- and middle-income countries on workers at the local level in developed economies (e.g., Autor, Dorn, and Hanson 2013; Balsvik, Jensen, and Salvanes 2015; Hakobyan and McLaren 2016).

Recent evidence also points out that the gains are unequally distributed and losses more visible. Recent policy research concludes that (i) the gains from trade are unequally distributed across countries, sectors, regions, and workers (Engel et al. 2021), and (ii) the losses are often more concentrated and visible than the gains ( <mark>Artuç et al. 2019; 2021).</mark> Studies, for instance, find that trade liberalization could lead to heightened inequality and deteriorating labor market outcomes (Goldberg and Pavcnik 2007; Nicita 2009; Topalova 2010; De Loecker et al. 2016; Dix-Carneiro and Kovak 2017; Pavcnik 2017; Erten, Leight and Tregenna 2019).<sup>5</sup> Inconclusive findings can to some extent also be attributed to the different types of trade under study, with the labor market effects from import competition differing from those of GVC participation. While the former type of trade directly competes with domestic production over consumer demand, the latter emphasizes the role of imported inputs for export production. Given that over half of international trade happens within the boundaries of GVCs (World Bank 2020), it is critical to not only focus on exports and imports, but also assess the role of GVC participation for labor market outcomes. In addition, renewed attention has been devoted to assessing the role of technology versus trade as both can create and destroy jobs. In a world characterized by GVCs, the trade and technology nexus is increasingly merged, as producers play off trade, investment, and technology to maximize profits (Farole et al. 2018).

Drawing on novel datasets with a good coverage of developing countries, this paper re-visits the relationship between trade and jobs across countries at the level of sectors and activities. This study reexamines the relationship between trade and jobs both indirectly, i.e., through econometric analysis applying an instrumental variables (IV) approach, and directly relying on new employment, income and input-output data that allow to characterize changing jobs and job specializations in exports. The combination of these methodologies and different datasets not only allows us to address endogeneity concerns, but also to provide new insights into the various trade and labor relationships, in particular (i) how the type of trade shapes within-sector job creation, (ii) how exports create employment directly in the export sector and indirectly in its supplying sectors, and (iii) which job activities embodied in exports are performed across countries, sectors, and occupations.

Importantly, the analysis aims to disentangle some of the complexities characterizing trade-and-jobs relationships, in particular the role of different types of trade, sectors, activities, and labor market

> 5 At the firm level, evidence for LMICs is less ambiguous, suggesting a positive association between a firm’s trading status (especially GVC participation) and employment. While the positive link between exporting and productivity and to a lesser extent employment has been established at the firm-level in LMICs, recent research suggests that participation in GVCs magnifies the labor gains from traditional one-way trade. Demand for worker skills also tends to be higher among GVC participating firms relative to non-GVC firms because of higher global quality standards imposed by lead firms in GVCs (World Economic Forum 2015; Criscuolo and Timmis 2017). As a result, GVC-participating firms are on average more productive, larger and more skill-intensive than other types of firms, including firms that export or import only. These gains from trade at the firm level do not necessarily materialize at the aggregate level of sectors and places, if GVC or one-way trading firms pull away workers from domestic only firms.

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