I am very interested in how globalization affects workers, households, and firms in developing countries. My most recent research studies how reductions in export costs affect the distribution of workers across informal and formal firms in Vietnam. In Vietnam, like in most other low-income countries, a large share of the workforce is working in a business that is not registered with the government (i.e., informal). This is a very important feature of the workforce for two reasons. First, workers in informal firms are typically paid less than workers are in formal firms, rarely have a signed contract, and are more likely to work an additional job. Second, informal firms are much less productive than formal firms suggesting that aggregate productivity could increase if exporting promoted the creation of jobs in formal firms.
Looking at a large reduction in U.S. tariffs (import taxes) on imports from Vietnam, I find that exports to the U.S. increased rapidly, creating hundreds of thousands of new jobs in formal firms. As workers moved to new jobs in the formal sector, aggregate productivity increased in Vietnam’s manufacturing sector.
Perhaps the most surprising result of this research has been how quickly Vietnam’s economy was able to take advantage of increased access to a large, rich export market. In on-going research, I am using firm data to study exactly how the firms in the formal sector responded to the U.S. tariff reductions. This is very exciting research due to the relatively unique interaction of a large state-owned sector, a rapidly growing foreign-invested sector, and a young and expanding private, domestic sector. Early results suggest that foreign-invested firms played a very important role in the export adjustment process, highlighting an important relationship between new export opportunities and openness to foreign investment.
I hope that my research is able to reach policymakers in low-income countries and will draw more attention to the important role of connections between the informal and formal sectors in low-income countries. I am delighted that the New York Times Magazine featured this research and that I have had the opportunity to present it to influential international economic organizations, such as the G-24, the International Monetary Fund, World Bank, and the World Trade Organization.
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