Globalization effect on employment: an evidence form islamic countries

Transcription

1 Globalzaton effect on employment: an evdence form slamc countres Gholamreza Tajgardoon The presdent of Sadr Internatonal Instute for Researches & Studes In Islamc Bankng, Iran Mehd Behname Department of Economcs, Shraz Unversy, Iran Khosro Noormohamad The expert of Presdent Deputy Strategc Plannng and Control, Iran Key Words Globalzaton; Employment; Islamc Countres; Panel Abstract The man am of ths paper s studyng of globalzaton effects on job level. The data set used cover 10 countres over the perod Before proceedng to estmate panel data, we carry out un root tests to examne whether the varables are statonary. Emprcal studes show that the globalzaton has both ncreased and decreased the employment. Decrease or ncrease of employment and s relatonshp wh globalzaton s studes n ths paper. In the present study, usng the method of estmatng the functon of labor demand and the dynamc theory of labor market through four man crera of globalzaton namely trade lberalzaton, employment, FDI, fnancal market effect (Islamc bankng) and the theoretcal foundatons of the relatonshp between globalzaton and market of labor has been studed. The employment wh respect to the gross domestc product, the degree of economy openness and Islamc bankng s posve but the employment wh respect to the government sze s negatve. The foregn drect nvestment has had a slght posve effect on the employment growth. Introducton The globalzaton has defned n the dfferent way. O'Rourke and Wllamson (2000) have defned globalzaton to mean" the ntegraton of nternatonal commody markets". Because the globalzaton have a relatonshp wh the commody and producton could also affect on employment, but the exstences theores on trade don't clearly determent globalzaton mpact on employment. Determnaton of relatonshp between globalzaton and employment s dffcult n case of defnon and measurement (Ghose 2000). Because the globalzaton s a phenomenon wh mult aspects and may be each aspect has the dfferent mpact on employment (economc, socal, polcal, cultural and ). Therefore, we can not deduce a whole relatonshp between globalzaton and employment n the globalzaton acceptor countres. Thus the am of ths artcle s the survey of globalzaton effect on employment n the Islamc selected countres. 130

2 Internatonal trade extend over the 6 recent decades has result economc effcency promoton, but the concept of ncome dstrbuton and suaton of workers s a dscusson yet. Ths study s mportant because the studed countres could apply the better polces for protecton of labor force and employment wh the better percepton of problem. Snce n macroeconomcs, nflaton and unemployment are the countres essental ssues. Of course, must consder that there are the problems about of survey of globalzaton nfluence on employment: labor forces n home and host countres constantly are about to move, n the other hand, a hgh percent of the payment to the labors n host countres s settled n the account of workers who spend ther money n the home country. Globalzaton n the economc aspect affect on employment n two ways: frst through ncreasng n the trade of fnal goods and servces, second ncreasng n the trade of nputs such as labor, capal and technology. There are the emprcal studes n ths case: Kletzer (2001), wh a sample for the perod have shown that ncreasng n mport competon results the employment. Baldwn (1995), have surveyed trade lberalzaton effect on employment n the OECD countres. He has presented that trade varatons don t have sgnfcant effect on producton and employment. Rama (1994), revealed that 1% decreasng n the trade protecton rate decrease 0.4% employment and Ravenge (1994), have shown that n Mexco decreasng n tarffs don t have any mpact on employment. Globalzaton nfluence on labor force As we sad above globalzaton affect employment n two ways: transformaton of commody and transformaton of labor and capal. Although globalzaton s mult aspects and the countres condons s dfferent, and therefore fnal effect on employment sn t clear but we survey globalzaton effect n these two sectons. Trade effects on employment Trade effect usually s more attractve than foregn drect nvestment. Globalzaton effect on employment s ndrect; means trade frst augments economc growth then ncreasng n the economc growth results ncreasng n employment. Wh globalzaton economc structure of countres lead to comparatve advantage; namely the countres accordng to natural and human resources, technology capables and ther nfrastructures fnd a place n nternatonal competon (I LO 1996). Anceto C. Orbeta J.r (2002) beleve that globalzaton means declne government control and nterventon n economc actvates and means development of prvate sectors. It expect that globalzaton motvate prvate economc actves that means an ncreasng n nternatonal trade and even n short long employment ncrease. 131

3 Gerefl and Kaplnsky (2001), beleve that global outsourcng have receved to an mportant and new set of economc structure n the world that we name the global value chan. Extenson of global value chan has receved to a new level of the fludy n nternatonal economcs that have an effect on qualy and quanty of the labor n the world. (Alfred Chandler 1977). Globalzaton n the developng countres results ncreasng of effcency and export n the ndustres whch protect wh the hgh tarffs. Thus, nternatonal trade contrbutons n natonal ncome ncrease. On the other hand, ncome ncreasng causes ncreasng n employment. In the most of developng countres, globalzaton decreases capal output rato. Because the wage n the developng countres s low, foregn frms constute a labor ntensve structure therefore employment level ncrease. The oppose of above, Anceto.C Orbeta(2002), dscuss that globalzaton could decrease employment: trade lberalzaton usually nvolve macroeconomcs stablzaton wh external and nternal balances for delverance from nflatonary pressure and creaton of sustanable growth. Stablzaton measure results decreasng n aggregate demand and have a recesson effect on employment. On the other hand, wh competon pressure the frms must ncrease ther productves, but f the frms could not augment ther productves may be dsmss the labor forces. Foregn drect nvestment effects on employment Here, we study the composon of foregn drect nvestment. Nowadays, n economy sale and producton s global. The frms of home countres for reducton of cost producton, set asde of rght work, search of capables and search of countres' human and natural resources transfer producton to the elsewhere. For ndustral economy such as U.S.A, Europe and Japan border ses reduce the producton cost. Whle, border assemblage frst have done wh the mult natonal frms subsdes but nowadays, frm capables have depended developng countres to these frms (Hamlton et all 2004). Economc dscussons show that FDI have a negatve and posve effect on employment. Foregn drect nvestment complete domestc nvestments and nvolve the creaton of new plants (the type of Greenfeld) thus ths case create new employment. If FDI focus on labor ntensve ndustres, employment ncreasng wll be hghlght. FDI wh creaton of backward and forward lnkages also can ncrease employment n local frms. Wh long run nvestment, employment creaton wll be stable. We also can consder the negatve effect of FDI on employment: foregn frms n whch are under home country pressures transfer hgh standard labor force n the host country wh themselves. In ths case, employment, n the host countres, doesn't ncrease very much. Ths nvestment may be dsplacng local frms. In the other hand, f foregn nvestment focus on capal ntensve ndustres employment wll don t be 132

4 very sgnfcant. And f nvestor can transfer ther capal, thus employment sn't very stable. The host country may be don't the labor force for attractng FDI. Methodology For studyng the effects of globalzaton on employment, we use panel data. Ths model consders globalzaton varable effect on employment for Islamc countres wh the tme dmenson. In order to avod from spurous regresson, we apply the une root tests and wh Hausman test we choose the type of model: fxed effect, random effect. Un Root test Before estmaton of the model, we should be ensured of the statonary of varables. Dckey-Fuller, Augmented Dckey and Phllps-Perron tests are used to measure the statonary of tme-seres varables, however, for panel data whch have hgher power compared wh tme-seres, other tests are appled. These tests are: Im, Pesaran and Shn (1997, 2002), Levn, Ln and Chu (1992). Among dfferent un root tests n econometrcs lerature, the LLC and IPS are more famous than others. Both of these tests have been made based on ADF. Assumng that data are homogeneous, LLC test has been made for dynamcs of autoregressve coeffcents for all panel parts. However, IPS more generally consders heterogeney of ths dynamcs. The benchmark model of autoregressve s as follows: Y Y 1 X (1) where shows = 1,2, N of the countres from the tmes of t=1,2,.,t. X are exogenous varables n the model. s the autoregressve coeffcent and s the statc process. If <1, Y s weakly statonary and f =1, then Y has a un root. In ths paper, IPS test was used for the un root, because the economc structures of the respectve countres are dfferent. Table 1 Un root test and Panel data GDP G OPE IBF FDI W -2.24* -1.35** -2.17* -7.12* -4.55** -2.66* (*, **) denotes rejecton of null hypothess: Panel seres has a un root at the (5%, 10%) level of sgnfcance, respectvely. As defned n Table 1, all the varables were sgnfcant n 5% and 10% level n the frst dfferent. It means the varables are statonary n frst dfferent, and so, spurous regresson s avoded. The Husman test shows that we must apply random effect. 133

5 Data and Methods The man varables for study of globalzaton effect on employment n ths study nclude foregn drect nvestment, GDP per capa, openness, employment, real wage, Islamc bankng, sze of government. Ths paper apples the panel data model for estmaton of the parameters for Islamc countres. The basc specfcaton for the model s E 0 1OPN 2GDP 3G 4IBF 5FDI 6 W where GDP s the real GDP per capa growth of country, OPN s openness and IBF s creds of Islamc bank n the host economy (we apply ths varable followng Anceto C. Orbeta Jr (2004)). FDI s the foregn drect nvestment and G s the sze of government n economy. E s employment and W s real wage. The data set used covers 9 countres over the perod The sources of varables are UNdata, the World Bank Group, UNCTAD and Growth Data Resources. Data source for IBF s Bankscope database compled by IFIS (Islamc Fnance Informaton Servce) dataset. The countres are: Bahran, Iran, Malaysa, Uned Arab Emrates, Pakstan, Kuwa, Saud Araba, Qatar, and Turkey. Results Table 2 Panel analyss, country random-effects, Dependent varable: Employment Independent (1) (2) (3) varables Constant 2.13** (2.11) (-1.24) (0.06) FDI 0.01** 0.05* 0.04** (2.21) (1.90) (2.22) GDP 0.013* 0.052* (1.98) (1.95) (1.32) OPE 0.012** 0.021** * (2.22) (2.14) (-1.93) IBF 0.02* 0.04* (1.86) (1.93) W 0.03* 0.001* (1.99) (1.91) G -0.01* (-1.92) Note: t-statstcs are provded n parentheses. *, ** and*** represent sgnfcance at the 10%, 5% and 1% respectvely. 134

6 In the table 2 we present the results for the benchmark model specfcaton. The results n frst column show that foregn drect nvestment, gross domestc producton and globalzaton (openness) have a posve mpact on employment. These results correspond to the results for Anceto C. Orbeta Jr (2004). They reveal that these varables are also a posve effect on employment. Evdence from country studes n Ghose (2000) suggests that trade ncreases the employment elastcy of manufacturng after lberalzaton. Fzgerald and Perosno (1995) note, once sklls, qualy, product dfferentaton are ntroduced, the employment consequences of lberalzaton become very confused. But Baldwn (1995) has presented that trade varatons don t have sgnfcant effect on producton and employment. Rama (1994), revealed that 1% decreasng n the trade protecton rate decrease 0.4% employment. In the second column we add the proxy of Islamc bankng (creds of Islamc bank n the host economy). Ths model shows that the varables also are posve. When the creds augment nvestment ncrease then the output and employment ncrease therefore Islamc bankng has a posve effect on employment. Anceto C. Orbeta Jr (2004) show also that ths effect s posve. The wage level has a posve effect on employment but the most of studes reveal that ths effect s negatve. Fnally government expendures have a negatve effect on employment. Ths results sn't very smart because wh government expendures economc capacy ncrease thus employment must augment. Dscusson The am of ths artcle s survey of globalzaton effect on employment. After applyng un root test we have estmated our model n random effect. The results above show that the globalzaton s posve effect on employment. Here mport and export are proxy for globalzaton effect. Globalzaton n the developng countres results ncreasng of effcency and export n the ndustres whch protect wh the hgh tarffs. Thus, nternatonal trade contrbutons n natonal ncome ncrease. On the other hand, ncome ncreasng causes ncreasng n employment. Other varable for globalzaton s foregn drect nvestment. Ths varable also has posve effect on employment because when nvestment augment the capacy of economy wll ncrease then output and employment ncrease. The other varable n our model s Islamc bankng. In these countres Islamc bankng s current therefore we have chosen the creds of Islamc banks as a proxy for Islamc bankng. When the banks pay creds nvestment and economc capacy wll ncrease then output augment and because employment s a functon of producton, thus employment wll ncrease. 135

7 When the wage level ncrease the labor force has the motvaton for workng but entrepreneur sn t motvaton for recrument because of producton costs. In our model the result s posve perhaps producton costs were covered wh ncreasng n output. The government expendures n Islamc countres have a negatve effect on employment. But we expect a posve effect for ths varable. References Baldwn, R. (1995). The effect of trade and foregn drect nvestment on employment and relatve wages, NBER Workng Paper, No (Cambrdge, MA: NBER). Castles, S. (nd) Development, Socal Transformaton and Globalzaton, CAPSTRANS. Curre, J., Harrson, A., (1997). Trade reform and labor market adjustment n Morocco. Journal of Labor Economcs. Fan, R. and J. de Melo, (1996). Trade Lberalzaton, Employment and Mgraton: Some Smulatons for Morocco, n OECD. Ghose, A. K. (2000) Trade lberalsaton and manufacturng employment, ILO, Employment paper 2000/3. Gregoro, R. (1979) An Economc Analyss of the Effect of Fscal Incentves for Industral Promoton, n Bautsta, Power and Assocates. Industral Promoton Polces n the Phlppnes. PIDS. Hamermesh, D. (1993). Labor Demand, Prnceton: Prnceton Unversy Press. Hamlton, Gary, Robert Feenstra, and Msha Petrovc. (2004). Demand Responsveness and the Emergence of Capalsm n East Asa: A Reassessment of the Asan Mracle. Paper submted to the Globalzaton, Employment, and Economc Development Workshop, Sloan Workshop Seres n Industry Studes. Rockport, Massachusetts, June Harrson, A. and G. Hanson (1999). " Who gans from trade reform? Some remanng puzzles," Journal of Development Economcs, Vol 59: ILO (1996) "The Impact of Globalzaton on the World of Work" ILO/JIL Network of Natonal Instutes for Labor Studes n Asa and the Pacfc, ILO Regonal Offce for Asa and the Pacfc, Bangkok,Thaland. Kletzer, Lor G.. (2001). Job Loss from Imports: Measurng the Costs. Washngton, DC: Instute for Internatonal Economcs. Krueger, A.O., (1983). Trade and Employment n Development Countres. Unv. of Chcago Press, Chcago. Lanzona, L. (ed.) (2001). The Flpno Worker n A Global Economy. Phlppne APEC Study Center Network and Phlppne Instute for Development Studes. Levnsohn, J. (1999) "Employment responses to nternatonal lberalzaton n Chle," J.of Internatonal Economcs, 47: Medalla, E., G. Tecson, R. Bautsta, J. Power (1995). Catchng up wh Asa s Tgers. Phlppne Instute for Development Studes. OECD (1996). Development Strategy, Employment and Mgraton. O Rourke, K. and J. G. Wllamson (2000). When Dd Globalzaton Begn? NBER Workng Paper 7632 Rama, M., (1994). The labor market and trade reform n manufacturng. In: Connolly, M., de Melo, J. (Eds.), The Effects of Protectonsm on a Small Country. World Bank Regonal and Sectoral Studes, Washngton, DC. Rama, M. (2001). Globalzaton and Workers n Developng Countres, Background paper for World Bank (2002) Globalzaton, Growth and Poverty. Oxford. 136

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