Economic Research Forum (ERF)

Employment, global value chains and spillover effects in Turkey

1530
Firms’ involvement in global value chains is increasing rapidly and it is vital for policy-makers to understand the direct effects on domestic employment, as well as spillover effects on the economy. This column sheds light on participation trends in Turkey and its repercussions for jobs.

In a nutshell

Turkey’s manufacturing sectors post faster growth through backward linkages in global value chains, whereas services sectors do so through forward linkages; agricultural sectors have the lowest participation.

There are significant associations between participation in global value chains and employment creation at the sector level in Turkey.

There are significant indirect effects of participation in global value chains on employment for the manufacturing sectors.

Economies’ participation in global value chains (GVCs) is witnessing unprecedented growth. Integration in GVCs occurs principally through the import of intermediate products used in the country’s exports and/or the supply of intermediate products to third countries’ exports. Several economic indicators are influenced by this integration into GVCs with effects depending on the extent of integration.

Previous research has stressed the significant association between international trade, productivity and employment, among other economic outcomes. For example, my recent study uses the world input-output tables to document a significant association between participation in GVCs and labour productivity at the sector level in Turkey (Mohamedou, 2020).

A study by Feenstra and Hanson (1996) links increasing demand for skilled workers with growth in trade in intermediate products. Banga (2016) shows that integration into GVCs is significantly related to employment in India and that increasing imports of intermediate products used in the country’s exports result in a kind of labour displacement at the sector level. Mohamedou and Tengku (2021), report a significant association between backward linkages, domestic value-added exports and employment at the sector level in Japan.

In this column, we shed some light on the importance of international trade in general and trade in value-added, in particular, for employment formation at the sector level in Turkey. Figure 1 shows trends in GVC participation, backward linkages (foreign valued-added export [FVA]), and forward linkages (Indirect value-added export [DVX]), which appear to be growing from 2001 onwards.

 

Figure 1. GVC participation, backward and forward linkages for Turkey, 2000-14

Source: Mohamedou (2019)

 

Figure 2 depicts trends in backward and forward linkages for the manufacturing, services, and agricultural sectors in Turkey from 2000 to 2014. The manufacturing sectors post faster growth through backward linkages, whereas services sectors do so through forward linkages. Agricultural sectors have the lowest participation.

 

Figure 2. Backward and forward linkages change from 2000 to 2014

Source: Mohamedou (2019)

 

The associations between GVC-related variables and employment in Turkey

 

Another of my studies analyses the effects of backward and forward linkages on employment for the manufacturing, services and agricultural sectors (Mohamedou, 2019). It shows that backward linkages contribute to the job creation process for manufacturing sectors. This suggests that the imports of intermediate products used in the country’s exports are used in conjunction with domestically produced goods, which stimulate both employment and productivity.

The study also shows that forward linkages are negatively associated with employment in the services sectors. A likely interpretation of this finding is that forward linkages of service sectors into GVCs are associated with significant outsourcing of their inputs internationally.

For example, services firms tend to offshore a significant portion of their inputs overseas. This can be observed in financial services, where financial firms tend to outsource their data management or specialised tasks. Another example is the outsourcing of basic design tasks in architectural services (Heuser and Matto 2017).

Therefore, higher forward linkages might be associated with significant losses in jobs. Finally, the study does not find a significant association between GVC-related variables and employment for agricultural sectors.

 

Spillover effects of GVC-related variables on employment

 

My study also suggests that job creation is susceptible to significant effects that arise as a result of the cross-industry input-output interconnectedness, which is captured via the input-output weight matrix concept (Mohamedou, 2019).

The indirect effects are mainly observed for the manufacturing sectors in which high backward and forward linkages in one sector deteriorate employment formation in sectors connected to it via the input-output weight matrix.

A plausible explanation is labour mobility. This suggests a relocation pattern is observed among workers towards sectors with higher participation in GVCs and thus higher productivity and incomes, which leads to a declining number of employees in the sectors.

Overall, my research sheds light on the importance of participation in GVCs through backward and forward linkages for the job creation process at the sector level in Turkey. There are significant associations between GVC participation and employment, as well as spillover effects. It is important for policy-makers to understand the mechanisms through which these spillovers effects take place.

 

Further reading

Baldwin, Richard, and Anthony J Venables (2013) ‘Spiders and snakes: offshoring and agglomeration in the global economy’, Journal of International Economics 90(2): 245-54.

Balsvik R (2011) ‘Is Labor Mobility a Channel for Spillovers from Multinationals? Evidence from Norwegian Manufacturing’, Review of Economics and Statistics 93: 285-97

Banga, Karishma (2016) ‘Impact of Global Value Chains on Employment in India’, Journal of Economic Integration 31(3): 631-73

Feenstra, RC, and GH Hanson (1996) ‘Globalization, Outsourcing, and Wage Inequality’, American Economic Review 86(2): 240-45.

Grossman, Gene M, and Esteban Rossi-Hansberg (2008) ‘Trading Tasks: A Simple Theory of Offshoring’, American Economic Review 98(5): 1978-97.

Heuser, C, and A Matto (2017) ‘Services trade and global value chains’, in ‘Measuring and analyzing the impact of GVCs on economic development’, International Bank for Reconstruction and Development.

Kummritz, V (2016) ‘Do Global Value Chains Cause Industrial Development?’, CTEI Working Paper No. 2016-01.

Mohamedou, ND, and Tengku, MC (2021) ‘Impact of Backward Linkages and Domestic Contents of Exports on Labor Productivity and Employment: Evidence from Japanese Industrial Data’, Journal of Economic Integration 36(4): 607-25.

Mohamedou, ND (2019) ‘Impact of Global Value Chains’ Participation on Employment in Turkey and Spillovers Effects’, Journal of Economic Integration 34(2): 308-26.

Mohamedou, ND (2020) ‘Inter-Industry Spillovers in Labor Productivity and Global Value Chain Impacts: Evidence from Turkey’, ERF Working Paper No. 1430.

Tags: , , , , ,

Most read

Egypt’s labour market: new survey data for evidence-based decision-making

As Egypt faces substantial social and economic shifts, understanding the labour market is crucial for designing policies that promote employment and inclusive economic growth. This column introduces the latest wave of the Egypt Labor Market Panel Survey, which provides fresh, nationally representative data that are vital for examining these dynamics.

The evolution of labour supply in Egypt

Egypt stands at a critical point in its demographic and labour market evolution. As this column explains, while fertility rates have dropped, reducing long-term demographic pressures, the ‘echo generation’, children of the youth bulge, will soon enter the labour market, intensifying the need for policies to accelerate job creation. At the same time, participation in the labour force, particularly among women and young people, is declining, partly as a result of discouragement.

Towards a productive, inclusive and green economy in MENA

Decarbonisation of the global economy is a huge opportunity for countries in the Middle East and North Africa. As this column explains, they can supercharge their development by breaking into fast-growing industries that will help the world to reduce its emissions and reach net zero, as well as offering greater employment opportunities and new export lines. Micro, small and medium enterprises in the region can lead the transition to a cleaner and sustainable future, but this may require the formation of clusters of firms that overcome some of the constraints that their limited size could involve.

Participation of Arab countries in global value chains

To what extent are countries in the Arab region participating in the global value chains (GVCs) that now dominate world trade? What are the main determinants of engagement in GVCs? And what are the expected benefits for Arab countries from joining them? This column answers these questions, concluding that it is important to focus on the products in which countries both enjoy a natural comparative advantage and can increase domestic value added in the intermediate and final parts of the production process.

Climate change: a growing threat to sustainable development in Tunisia

Tunisia’s vulnerability to extreme weather events is intensifying, placing immense pressure on vital sectors such as agriculture, energy and water resources, exacerbating inequalities and hindering social progress. This column explores the economic impacts of climate change on the country, its implications for achieving the sustainable development goals, and the urgent need for adaptive strategies and policy interventions.

Growth in the Middle East and North Africa

What is the economic outlook for the Middle East and North Africa? How is the current conflict centred in Gaza affecting economies in the region? What are the potential long-term effects of conflict on development? And which strategies can MENA countries adopt to accelerate economic growth? This column outlines the findings in the World Bank’s latest half-yearly MENA Economic Update, which answers these questions and more.

Assessing Jordan’s progress on the sustainable development goals

Global, regional and national assessments of countries’ progress towards reaching the sustainable development goals do not always tell the same story. This column examines the case of Jordan, which is among the world’s leaders in statistical performance on the SDGs.

Rising influence: women’s empowerment within Arab households

In 2016 and again in 2022, a reliable poll of public opinion in the Arab world asked respondents in seven countries whether they agreed with the statement that ‘a man should have final say in all decisions concerning the family’. As this column reports, the changing balance of responses between the two surveys gives an indication of whether there been progress in the distribution of decision-making within households towards greater empowerment of women.

Unleashing the potential of Egyptian exports for sustainable development

Despite several waves of trade liberalisation, Egypt’s integration in the world economy has remained modest. In addition, the structure of its exports has not changed and remains largely dominated by traditional products. This column argues that the government should develop a new export strategy that is forward-looking by taking account not only of the country’s comparative advantage, but also how global demand evolves. The strategy should also be more inclusive and more supportive of sustainable development.

International and regional financial integration in MENA

What are the effects of financial integration at both the regional and international level on the domestic economies of the Middle East and North Africa? This column summarises new research evidence on this question. The results suggest that while regional financial integration offers substantial benefits, ‘too much’ international integration could hinder financial development.