Exporting, Wage Profiles, and Human Capital: Evidence from Brazil

Export activity shapes workers’ experience-wage profiles. Using detailed Brazilian manufacturing employer-employee and customs data, we document that workers’ experience-wage profiles are steeper at exporters than at non-exporters. Aside from self-selection of more capable firms into exporting, we show that workers’ experience-wage profiles are steeper when firms export to high-income destinations. We then develop and quantify a model with firms’ export market entry, worker-firm wage bargaining, and workers’ human capital accumulation to interpret the data and perform counterfactual experiments. We find that human capital growth can explain roughly one-half of the differences in wage profiles between exporters and non-exporters as well as the gains in experience returns after entry into high-income destinations. We also show that increased human capital per worker can account for one-half of the overall gains in real income from trade openness. In slowing human capital accumulation, trade liberalization can induce welfare losses if trade partners are predominantly low-income destinations

Learning by Exporting and Wage Profiles: New Evidence from Brazil

Export activity shapes workers’ experience-wage profiles. Using detailed Brazilian manufacturing employer-employee and customs data, we document that workers’ experience-wage profiles are steeper at exporters than at non-exporters. Aside from self-selection of more capable firms into exporting, we show that workers’ experience-wage profiles are steeper when firms export to high-income destinations. We then develop and quantify a model with export market entry, wage renegotiations, and human capital accumulation to interpret the data and perform counterfactual experiments. We find that human capital growth can explain roughly 40% of differences in wage profiles between exporters and non-exporters as well as the gains in experience returns after entry into high-income destinations. We also show that increased human capital per worker can account for one-half of the overall gains in real income from trade openness. In slowing human capital accumulation, trade liberalization can induce welfare losses if the trade partners are low-income destinations

Export or merge? Proximity vs. concentration in product space

This paper proposes a proximity-concentration tradeoff in product space as a determinant of horizontal foreign direct investment (FDI). Firms that enter a foreign market by exporting are able to capture consumer surplus by introducing a differentiated product with characteristics that the incumbent cannot match. In relatively globalized product space, in contrast, consumers perceive an entrant's difference to existing products as less pronounced so a consumer's virtual distance costs in product space are lower and a merger with an incumbent (horizontal FDI) offers pricing power that allows the entrant to extract consumer rent. Lower physical trade costs of shipping make Bertrand price competition fiercer in differentiated product space and can provide an additional incentive for a merger. A basic product space model with a linear Hotelling setup can therefore explain why FDI has become more frequent in recent periods in the presence of falling trade costs. Cross-border merger and acquisitions data support the model's prediction that horizontal FDI grows relatively faster than exports in differentiated goods industries, compared to homogeneous goods industries. © 2014 City University of Hong Kong and National Taiwan University