Faculty Research Spotlight: Brian McCaig

New export opportunities and foreign direct investment in low-income countries

Brian McCaig, Professor in the Department of Economics, has spent the past 18 years studying how international trade affects economic development, with a focus on Vietnam. Vietnam has rapidly industrialized in the past 25 years behind surging exports of manufacturing goods. 

In his recent research “Foreign and Domestic Firms: Long Run Employment Effects of Export Opportunities”, with Nina Pavcnik and Woan Foong Wong, he explores long run employment effects in Vietnam due to new export opportunities arising from a large reduction in U.S. tariffs applied to imports from Vietnam in 2001. The reduction in tariffs generated a surge in manufacturing exports following the lowering of US tariffs in 2001 (Figure 1).

Figure 1: Vietnamese manufacturing exports to the US

Dr. McCaig and coauthors explore which firms were behind the export surge and the consequences for employment. They find that total employment grew faster in industries that experienced larger U.S. tariff reductions and that the majority of this employment growth was accounted for by foreign-owned firms establishing new production facilities in Vietnam. The foreign entrants experienced sustained, rapid employment growth driven by exporting not only to the U.S., but to other countries as well. Most of the newly established foreign-owned firms are from parent companies in Japan, South Korea, and Taiwan. This work demonstrates the important link between export-oriented production and openness to foreign direct investment, and how global value chains adjust to changes in trade policy.

With the support of Canada’s Social Sciences and Humanities Research Council and the Economic Research Institute for ASEAN and East Asia, Professor McCaig was able to involve multiple undergraduate students from Laurier’s economics programs as research assistants on the project. They assisted with the data analysis and preparation. The research has been presented widely, including to the World Bank and a joint World Bank-G7 conference on trade & value chains. The paper was recently resubmitted to The Review of Economics and Statistics.

This research demonstrates that export-oriented manufacturing can be a source of new jobs, and, in this context, these jobs predominantly went to young women. Follow up research is examining the impact of these new jobs in foreign-owned manufacturing firms on decisions related to marriage, motherhood, and migration for young women in Vietnam.

Samsung Electronics building in Vietnam