Annual Report 2018
Economics
APPLICATIONS OF THE RESULTS AND POSSIBLE EXTENSIONS OF THE STUDY
The development of non-cognitive skills is important not only because of the well-doc-
umented effect of these skills on risky behaviors and labor market outcomes, but also
because these skills can increase the return of investments to develop cognitive skills
and increase the window of opportunity to change them. A question for future studies
is whether this complementarity with non-cognitive skills is a particular characteristic
of the Lego building block program or if it can be found in other types of programs and
investments in teamwork.
In terms of public policies, the project demonstrated that for students with stronger pre-
vious socio-emotional competencies the impacts of the Lego program on their academic
performance were greater, which attests to the importance of developing socio-emotion-
al abilities as a mechanism to diminish educational inequalities in the future.
INTERNATIONAL COMPETITION
AND ITS EFFECTS IN THE LABOR MARKET
In recent decades China has become the world's leading foreign
trader (in terms of value). This project studies how the world has
responded to this unprecedented development, concluding that
the growing participation of China in global trade has generated
welfare gains around the world. However, there are winners
and losers in different productive sectors.
AUTHORS:
Cristine Campos de Xavier Pinto and Vladimir Ponczek.
RESEARCHERS:
Helena Lima and Luis Alvares.
ORGANIZATION:
Sao Paulo School of Economics (EESP).
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OBJECTIVE
•
To provide a general theoretical framework to quantify the impacts of a shock
in international trade considering labor market frictions. Gains in welfare arising
from China's growing participation in the global market are calculated using nu-
merical methods and considering not only the benefits of cheaper Chinese prod-
ucts to consumers, but also the potential costs associated with adjustments in the
job market.
RESEARCH METHOD
•
A dynamic model of world trade was constructed, including various important as-
pects of the impact of trade shocks, namely search frictions, job heterogeneity and
labor mobility frictions.
Changes in real income per capita resulting from the growing participation of Chi-
na in the global market were calculated by numerical methods. These calculations
considered not only the benefits, but also the potential costs asssociated with labor
market adjustments.
RESULTS
•
•
The results generated by the model show that lowering of trade barriers between
China and the rest of the world benefits all countries, not only in the new equilibri-
um, but also during the transition period.
Nevertheless, workers employed in industries with low technology experienced a
fall in their real wages and higher unemployment after the ascension of China. In
this case, the negative effects generated by greater exposure to Chinese imports
outweighed the positive effects of the decline of prices to consumers.
The numerical exercise also demonstrates the dynamic effects associated with the
rise of China. Immediately after the shock, wages increased in exporting sectors
and fell in industries facing fierce import competition from China.
As workers shifted from industries strongly affected by Chinese growth in search of
better-paid jobs in other sectors, wages started to fall in exporting sectors due to
the increased supply of labor. This meant that in such industries, wages were lower
in the new equilibrium than during the transition period. In sectors that faced strong
competition from Chinese imports, however, the effects were the opposite: wages
fell immediately after the shock and recovered over time.
CONTRIBUTIONS OF THE STUDY
This is the first study to explicitly quantify the effects of a trade shock - the rise
of China - by analyzing the following aspects: general equilibrium effects between
countries; dynamic adjustment path to a new equilibrium; and adjustment costs of
workers between sectors.
Annual Report 2018
27
RESEARCHView entire presentation