Trade Openness, Technology Adoption and the Demand for Skills: Evidence from Turkish Microdata

Abstract

In this paper we report evidence on the relationship between trade openness, technology adoption and relative demand for skilled labour in the Turkish manufacturing sector, using firm level data over the period 1980-2001. We first depict the simultaneous increasing trends in international openness and in demand for skills and we show that the shift of the relative demand for labour was mainly due to the withinindustry component, suggesting the relevance of the skill biased technological change (SBTC) hypothesis. We then estimate – in a dynamic panel data setting using a unique database of 88,561 firms – an augmented cost share equation whereby the wage bill share of skilled workers in a given firm is related to international exposure and technology adoption. Overall, results suggest that trade openness and technology play a key role in shifting the demand for labour towards more skilled workers within each firm. Technology related variables (domestic R&D expenditures and technological transfer from abroad) are positive and significantly related to skill upgrading, as it is the involvement of foreign capital in firm’s ownership. Moreover, firms belonging to those sectors that most raised their imports also experienced a higher increase in the labour cost share of skilled workers. This finding is consistent with the idea that imports by a middle income country imply a transfer of new technologies that are more skill-intensive than those previously in use in domestic markets. This idea is reinforced by the finding that only imports from industrialised countries where the potential for innovation diffusion comes from enter the regressions significantly. Instead, sectoral export orientation is negatively correlated with the demand for skills, which is consistent with the predictions from the trade theory, given Turkey’s comparative advantage in the production of unskilled-labour-intensive goods.

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Cite this paper

@inproceedings{Meschi2008TradeOT, title={Trade Openness, Technology Adoption and the Demand for Skills: Evidence from Turkish Microdata}, author={Elena Meschi and Erol Taymaz}, year={2008} }