Trade liberalization and relative employment: further evidence from Tunisia

Abstract

There are increasing studies that address the skill upgrading in developing countries. The theoretical analyses yield different results about which factors affect skill upgrading. The impact of trade openness and technology transfer on the relative demand for skilled labor remains a puzzle, the issue is mainly empirical questions. The empirical findings surrounding this question are in total contradiction with the prediction of traditional trade theory. This paper addresses this puzzle for the Tunisian economy by considering a database covering 12 Tunisian sectors for the period of 1983-2010. Empirical results indicate that trade openness positively affects relative demand of skilled labor. Empirical results also show that the effects of technological change induced by trade on relative demand of skilled labor are ambiguous. First, technology change has positive effects mediated via export channels, this is an evidence of the "learning by exporting" channel. Second, technology change has a negative effect mediated via imports. These empirical findings have important economic implications; for instance Tunisian economic policy should be oriented to improve a firm's competitiveness and labor market capacity to minimize the cost of trade liberalization in terms of employment losses mainly for unskilled workers. 2015, Eurasia Business and Economics Society.