"Essays on International Trade, Offshoring, and FDI"

Yoo, Myunghwan, Economics - Graduate School of Arts and Sciences, University of Virginia
Mclaren, John, AS-Economics, University of Virginia
Harrigan, James, AS-Economics, University of Virginia
Cosar, Kerem, AS-Economics, University of Virginia

With globalization, offshoring and foreign direct investment (FDI) have been growing dramatically in recent decades. This dissertation studies the effects of offshoring and FDI on labor market outcomes and living standards. Chapter 1 focuses on estimating the effect of material and service offshoring on wages in South Korea. Chapter 2 investigates the effect of inward FDI on income distribution and absolute living standards in Vietnam. Chapter 3 contributes to the empirical trade and offshoring literature by estimating the effects of the negative employment shock of offshoring on individual wages across local labor markets. Below, I discuss each chapter in detail.

Chapter 1 is an empirical-oriented study on offshoring and wages in South Korea. Using disaggregated Input-Output tables with detailed import matrices for South Korea between 2005 and 2014, I measure offshoring directly, free of the erroneous proportionality assumption. I estimate the effect of both material and service offshoring on wages in South Korea. The results show no statistically-significant effect of offshoring on wages at the industry level. However, at the occupation level, the effect is statistically and economically significant. An instrumental variable approach indicates that a one percent increase in material offshoring results in a wage increase by 0.083 percent. This finding is driven by the workers in service sector who had not switched sector of employment. Material offshoring appears to increase wage inequality among the workers who perform routine tasks and non-routine tasks in South Korea.

Chapter 2, coauthored with John McLaren, investigates the effects of inward FDI on income distribution and absolute living standards in Vietnam using the Census data from 1989-2009. We compute the number of employees of foreign establishments in each of Vietnam’s provinces for each year, and use that as a measure of local FDI. We estimate the effects of FDI on local households’ living standards as reported in the data, broken down by educational background to allow us to analyze effects on inequality. Estimates based on the repeated cross section indicate that rising FDI in a province is associated with a slight decline in living standards for households there if they do not have a member employed by the foreign enterprises, with only modest gains for households who do have a member employed by the foreign enterprises. These estimates may reflect selection effects, however, since we find large movements of people toward the provinces receiving the FDI. The findings show that measuring the effect of FDI on household welfare is more difficult than measuring the effect of trade policy, and may pose a difficulty for the view of FDI as a general anti-poverty strategy.

Chapter 3 examines the effect of offshoring-induced employment shock on wages of U.S. workers across local labor markets, joint with Hyejoon Im and Yang Shen. Using a dataset of petitions from the U.S. Trade Adjustment Assistance (TAA) program, we identify the offshoring-induced layoffs by commuting zone and by industry. We construct a measure which captures the negative employment effect of offshoring. The measure is defined as the share of offshoring-induced layoffs out of the total employment in a commuting zone or industry. With this measure, we estimate the effect of offshoring-induced layoffs on wages and find that among the observations exposed to negative employment shocks of offshoring, a one-percentage-point increase in the share of offshoring-induced layoffs at the commutingzone level is associated with a 1.024% decrease in individual wages.

PHD (Doctor of Philosophy)
Offshoring, Wages, Proportionality Assumption, Occupation, FDI, Inequality, Living Standards, Local Labor Market, Trade Adjustment Assistance (TAA) Program
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