Relationship between trade and labor productivity globally: An analysis with panel data

Abstract

The present research examines the relationship between trade and labor productivity in113 countries using panel data techniques during 1990-2014. For this, data collectedfrom the World Development Indicators (2015) was used, classifying countries accordingto their income level into six groups: extremely high income (EHIC), high income (HIC),upper middle income (MHIC), middle income Low Income (MLIC), Low Income (LIC), andExtremely Low Income (ELIC). The Generalized Least Squares (GLS) model was used, aswell as cointegration and causality techniques used for panel data. It was determined that,only at the global level, there was a long-term relationship between the model variables,while, in the short term, the relationship turned out to be significant at the global leveland in all income groups. Regarding causality, a bidirectional causal relationship was establishedat the global level. In the MLIC and ELIC there is a unidirectional causal relationshipthat goes from trade to labor productivity, while in the HIC and MHIC, the causality isthe opposite, that is, labor productivity explains trade. The policy implication focuses ongreater investment in exports in order to diversify the commercial offer as a fundamentalfactor to generate employment and competitiveness in the international environment.