Employment effects of trade reform in the Vietnamese banking industry

In response to the call for evidence of sectoral employment impacts of services trade reform, the paper examines how trade liberalisation in the Vietnam’s banking industry would change employment between sectors and total employment under in two macroeconomic settings: fixed versus variable labour supply. Using the FTAP-VN model and GTAP 7 Database, the paper finds that potential trade reform in Vietnam’s banking industry could have significant impacts on employment across industries in the economy regardless of the labour supply assumptions. Apart from the employment relocation effect as in the fixed labour supply, trade reform with a variable labour supply would expand jobs in all industries, increasing total employment by 6.3%. Trade reform would most benefit employment in the financial services itself and the industries with close linkages with the financial sector and facing the highest reduction in the relative price of labour to capital. In any cases, services would gain the most in terms of job creation from the trade reform. Services would also absorb most of the increased labour supply, followed by manufacturing and agriculture and mining. With a fixed labour supply, trade reform would encourage a substitution of unskilled labour for skilled labour across industries, placing skilled labour in a relatively disadvantaged position in the short run. In the short and median run, in order to avoid a shortage of skilled labour and consequent pressure on wages, Vietnam would need to invest in education and training to create a better skilled labour force, particularly in banking and finance. With a variable labour supply, in the long-run, the pressure on wage increase and substitution of skilled labour for unskilled labour could be mitigated with the transformation of unskilled labour into skilled labour and the increasing labour supply.

Agriculture Trade Reform and Sustainable and Inclusive Food Security

The food system in the Asia-Pacific needs to be viewed as a whole, from production to plate, in order not only to achieve food security in the region but also to contribute to sustainable and inclusive growth. To that end, there is a strong case for AsiaPacific economies to bring a renewed focus to structural reform in agriculture, including substantially reducing trade-distorting subsidies and liberalising market access barriers, alongside seeking to increase productivity, improve infrastructure and leverage digital technologies. The Covid-19 pandemic underscores the importance of open, undistorted markets, and will also stand economies in good stead in the longer term as adverse impacts from climate change add to production challenges and potential food insecurity.

USMCA could influence future trade deals’ focus

Significance US President Donald Trump has left the Trans-Pacific Partnership and escalated trade frictions with China. The USMCA, by contrast, shows a trade deal renegotiated, the implementation of which will be watched for its implications for other US trade activity, especially with the presidential election coming in November. Impacts COVID-19 disruptions mean some aspects of the USMCA, such as rules of origin, will be delayed. If Trump is re-elected, he will continue his tariff-driven efforts to secure Chinese economic reform for US firms. Biden would aspire to strengthen US-Asian trade ties but would focus first on smoothing trade with existing partners. China and neighbours should assume a Mexican challenge to their production, especially of autos, steel and textiles. Trump will tout the USMCA as evidence his trade reform agenda works.

Are Capital Goods Tariffs Different?

In this paper we demonstrate the importance of distinguishing capital goods tariffs from other tariffs. Using exposure to a quasi-natural experiment induced by a trade reform in Colombia, we find that firms that have been more exposed to a reduction in intermediate and consumption input or output tariffs do not significantly increase their investment rates. However, firms’ investment rate increase strongly in response to a reduction in capital goods input tariffs. Firms do not substitute capital with labor, but instead also increase employment, especially for production workers. Reduction in other tariff rates do not increase investment and employment. Our results suggest that a reduction in the relative price of capital goods can significantly boost investment and employment and does not seem to lead to a decline in the labor share.