Examining the Export Wage Premium in Developing Countries

• Author: Irene Brambilla,Guido Porto,Nicolas Depetris Chauvin
• DOI: http://doi.org/10.1111/roie.12231
• Date: 01 August 2017
• Published date: 01 August 2017

Examining the Export Wage Premium in

Developing Countries

Irene Brambilla, Nicolas Depetris Chauvin*, and Guido Porto

Abstract

There are arguably potential wage gains from exports in developing countries. Export markets bring about

opportunities for firms and successful exporting firms translate some of the benefits of exports to workers

via employment and wage premia. Using comparable data for 61 developing and low-income countries, we

document the prevalence of the export wage premia worldwide. With an extensive literature review, we

identify four major drivers of the wage premia: exporting firms hire more skilled workers, utilize more

sophisticated machines, buy higher quality material inputs and are more productive than non-exporting

firms. Our empirical analysis confirms the worldwide prevalence of these mechanisms and, furthermore,

establishes a stronglink to the estimated wage premia.

1. Introduction

Export markets bring gains to the domestic economy and can become an engine for

development in low-income countries. In particular, the evidence shows that exporting

firms pay higher wages and hire more workers than non-exporters. This is due to the

combination of special requirements of the act of exporting, such as quality upgrades

or exporting services, and some inherent attributes of firms, such as productivity, tech-

nology and efficiency (Matsuyama, 2007; Verhoogen, 2008). In this scenario, exporting

brings up enhanced opportunities for firms in world markets, and these opportunities

can be successfully exploited if firms have, or develop, the needed attributes to

become efficient world producers. In turn, this process has implications for employ-

ment and wages and, in consequence, the whole mechanism allows those world export

opportunities to be transmitted to the local economy. In the end, the benefits from

globalization can be realized not only at the firm level (e.g. in terms of profits) but

also at the worker level (e.g. in terms of wages and employment).

Our goal in this paper is to assess these arguments. We want to study whether

exporting firms do pay higher wages, focusing in particular on lower income countries,

and to investigate some of the operating mechanisms. To this end, we build on a litera-

ture review that identifies major theories and hypothesis related to exports and wages.

In this review, we find that export markets demand high-quality products and that the

production of high-quality products requires high-quality skilled labor, high-quality

imported inputs, high-quality sophisticated machinery and high-quality productive

firms. Then, we use comparable micro-data from the Enterprise Surveys to quantita-

tively document the wage premia paid by exporting firms in 61 developing and low-

* Depetris Chauvin: Haute Ecole de Gestion de Geneve, University of Applied Sciences Western Swit-

zerland, 1227 Carouge, Switzerland. The authors thank P. Garriga and L. Venturi for excellent research

assistance. They have also benefitted from comments from seminar presentations at Universidad Nacio-

nal de La Plata, the University of Geneva, and DEGIT XX. All errors are our responsibility. The

authors are grateful to the R4D program for Research on Global Issues for Development funded by

Swiss National Science Foundation and the Swiss Development Cooperation.

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C2016 John Wiley & Sons Ltd

Review of International Economics, 25(3), 447–475, 2017

DOI:10.1111/roie.12231

income countries and we document the role of product quality, labor quality, input

quality, technology and productivity. We find strong evidence of a wage premium

among exporting firms and we provide strong support for the operating mechanisms

advocated by the literature. In our sample of 61 countries, these mechanisms explain

most of the wage premia.

The paper is organized as follows. In section 2, we describe and use firm-level

micro-data to estimate the wage exporter premia. In section 3, we do a comprehensive

literature review of several dozen papers from the literature and we provide evidence

of some of the mechanisms at play behind those premia. In section 4, we assess the

role of these mechanisms in explaining the wage premia. Section 5 concludes.

2. Exporting Firms and the Wage Premium

The aim of this section is to establish empirically the main premise of this study,

namely that exporting leads to gains in wages. Since the literature mostly provides esti-

mates of wage export premia in middle-income and developed countries, we are par-

ticularly interested in determining whether this observation holds for developing and

low-income countries too. This is an important contribution of our paper.

The Data

The basic set of stylized facts concerning exporting firms and wages is derived here

using comparable data from the Enterprise Surveys. An Enterprise Survey is a firm-

level survey of a representative sample of an economy’s private sector. The surveys

cover a broad range of business environment topics including access to finance, corrup-

tion, infrastructure, crime, competition and performance measures. The Enterprise

Surveys provide the world’s most comprehensive firm-level data for low-income coun-

tries. The Enterprise Surveys project is jointly led by the World Bank and various

partners, such as the European Bank for Reconstruction and Development, the Inter-

American Development Bank (IDB), COMPETE Caribbean, and the UK’s Depart-

ment for International Development (DFID).

In every country, there is a unique and consistent definition of the universe of the

survey. This universe can be described as the non-agricultural formal private economy

and it includes manufacturing, retail, other services, IT, construction and transport. All

firms with five employees or more are included. Samples are stratified by industry, size

and geographical regions. The number of strata is defined according to the size of the

economy. For large and very large economies between 2 and 6 manufacturing sectors

are selected to be surveyed with samples large enough to allow for sector analysis

(productivity). Retail is also singled out as a stratum on its own. The rest of the econ-

omy is allocated into two additional strata: rest of manufacturing and the rest of the

economy (including construction, transport and other services). Medium size econo-

mies are stratified only into manufacturing, retail and the rest of the economy. Small

economies are stratified into manufacturing and services and usually their sample size

is 150 firms.

Special emphasis is placed on the quality of the information. Experience shows that

this is highly correlated to the length of the questionnaire, which also affects the

response rate. Consequently, the questionnaire is designed to not take longer than 1

hour to complete. A unique global questionnaire is used across all regions. To incorpo-

rate regional interests, 60 variables are allocated to reflect regional characteristics, pro-

vided that the questions follow the general format of the global questionnaire.

Regional questions can be distributed across the questionnaire or ideally into modules

448 Irene Brambilla, Nicolas Depetris Chauvin and Guido Porto

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C2016 John Wiley & Sons Ltd