In Conversation: Ana Cecília Fieler and Guillermo Noguera on global trade & current tensions

Cecília, your work is more micro. How do firm-level responses to trade shape broader patterns of growth?

Fieler: Much of my research focuses on the effects of international trade on labor markets and technologies in developing countries, especially middle-income countries. In the 1980s and ‘90s, many developing countries opened up to trade – but instead of boosting demand for unskilled labor, as many economists expected, the wages of skilled workers increased by 10% to 20% relative to unskilled workers.

Why is that? My research is part of a broader literature showing that firms engaging in international trade with rich countries tend to upgrade their technology and management practices – like integrated computer systems, more precise machines, or “just-in-time” systems to deliver high-quality goods on demand.

My work finds that the effects of trade may be much larger than previously thought, because these effects propagate through the production chain. In a paper with Marcela Eslava and Daniel Yi Xu using Colombian firm-level data and another paper with Banu Demir, Daniel Xu, and Kelly Kaili Yang using Turkish firm-level data, we find that firms engaging in trade with rich countries become more skill-intensive – and as importers and exporters upgrade, their domestic suppliers and customers do too. Modeling this, we show how trade can spur broad changes in the domestic market.

However, these effects only occur under two conditions. First, a sufficiently educated labor force – manufacturing as a whole can’t become skill-intensive without skilled workers. Second, perhaps more polemically, running trade surpluses with rich countries – as East Asia did for decades. Demand from rich countries, and interaction with their advanced firms, is what leads importers and exporters to upgrade.

Noguera: You mentioned skilled workers benefited and unskilled workers were adversely affected. Overall, did you find that Turkey was better off?

Fieler: We avoid making explicit welfare comparisons, partly due to variations in household preferences and consumption patterns – but it’s unlikely that unskilled workers in Latin America benefited. These countries’ manufacturing sectors became smaller after liberalization; firms became more skill-intensive by shedding unskilled workers. Other papers – including work from Colombia by EGC affiliates Orazio Attanasio and Penny Goldberg with Nina Pavcnik – show that trade liberalizations are associated with increases in the informal sector.

This suggests that Latin American countries didn’t match the two conditions of having enough skilled workers or running trade surpluses. Manufacturing became more skill-intensive, but it also shrunk and became less relevant.

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