Intra-regional trade and the jobs created
 December 2001

In January 1992, the Andean countries, with the exception of Peru, launched the liberalization program for the creation of the Free Trade Area mandated in the act signed by the Sixth Andean Presidential Council in December 19911. By January 1993, 100% of the tariff universe among the cited countries had been reduced to zero. The Sucre Protocol in 1997 cleared the way for Peru’s participation in the Free Trade Area (FTA) and today over 90% of the tariff universe is duty-free.

This report gauges the effect of intra-Community trade on gainful employment as of the formation of the FTA during the period of its heaviest growth: 1992-1997. Also studied are the absolute effect on employment in 2000 and the sectors producing the largest number of intra-regional trade-related jobs in each Andean country.

The multiplier effect of intra-Community trade on employment was analyzed using methodology based on an input-output model for an open economy2. Employment-output multipliers were determined for a given year from input-output tables for Bolivia (1990), Colombia (1994), Ecuador (1993) and Peru (1994)3. This generated the main hypothesis for the exercise: the technical production ratios taken from those tables remained unchanged over the study period. Missing production sector data for Venezuela was obtained from the ISIC Classification, Rev. 3 at the two-digit level. The Andean Community General Secretariat’s Integrated Foreign Trade System, which collects official information from the member countries, supplied the foreign trade data.

1. Period of heaviest growth 1992-1997

The adoption of economic reforms by some Andean countries in the late eighties and early nineties ushered in the period of heaviest intra-Community trade growth, 1992-1997. The wave of financial crises in emerging markets and other internal developments (political crises and the Niño phenomenon, among others) that followed impaired the performance of Andean foreign trade within the Community bloc.

Table No. 1
CAN: Exports
(Average annual growth rate -%)

 Source: CAN General Secretariat SICEXT

Intra-Community exports rose US$ 3.4 billion over the period, for an average growth of 20.4% per annum, or ten percent above extra-Community exports. This is also over eight percent more than the 11.1% recorded between 1991 and 2000. Some 323,000 new jobs, both direct and indirect, were created as a result4.

Between 1992 and 1997, Colombia led the growth in value of exports (US$1 billion 264 million), followed by Peru (US$861 million) and Ecuador (US$701 million), while Venezuelan and Bolivian exports increased by US$470 million and US$107 million, respectively.


Some 323,000 new jobs were created, benefiting gainful employment in the Subregion. Venezuela, Ecuador and Colombia recorded the largest increases in intra-Community generated employment between 1992 and 1997, at 98,000, 94,000 and 89,000 new jobs, respectively. Bolivia and Peru trailed behind, with 29,000 and 13,000 additional direct and indirect workers.

2. Exports and intra-Community trade-related employment in 2000

Intra-Community export-related employment reached its highest level in absolute terms in 1997, at over 530,000 jobs. It then entered a downward trend, which in 1999 worsened as the crisis in the Subregion pushed the gross domestic product into the red in most of the member countries5. Export activity recovered significantly in 2000 and between January and September 2001 outpaced the previous year’s growth by 11.5%, a figure that is particularly significant if compared with the drop in extra-Community exports (9.8%).

The Subregion’s exports in 2000 amounted to US$5 billion 167 million, calling for the creation of 478,000 new paid jobs, both direct and indirect. Although no cause-and-effect relationship has been proven between the growth in trade and the Free Trade Area, those figures are a reflection in part of the favorable effects of intra-Community trade on employment in a given year (2000).

Colombia, Venezuela and Ecuador benefited the most from intra-Community trade in terms of direct and indirect employment, with 228,000, 97,000 and 86,000 new jobs, respectively. Intra-regional trade-related gainful employment in Bolivia resulted in 45,000 new jobs, and in Peru, in almost 23,000.

Data for 2000 reveals that intra-Community trade-related employment accounted for 31% of Bolivia’s total export-generated jobs, 18% of Colombia’s, 10% of Ecuador’s, 9% of Venezuela’s, and only 6% of Peru’s.

Over 76% of the jobs arising out of Bolivia’s exports to the Andean countries are concentrated in the Diverse Food Products sector and 13% in the Agroindustrial Products sector.

In Colombia, Basic and manufactured Chemical Products (13.2%), Knitted or Crocheted Textiles and Garments (13%), and Other Machinery and the Supply of Electricity (7.2%) are the sectors that most influence gainful employment.

The Subregionally-oriented export sectors with the strongest impact on new jobs in Ecuador are: Cereal Cultivation (11%), Other crops (10%), and Crude Oil and natural gas extraction (9.7%).

Non-Ferrous Metals (18%), Textile Products (15%) and Agricultural Products (7.8%) are the Peruvian sectors showing the largest growth in intra-Community trade-related employment.

In Venezuela’s case, Base Metals, Chemical Substances, and Foods and Beverages account for over 57% of its intra-Community export-related jobs.

3. Identification of the economic sectors with the largest growth in intra-Community export-related employment.

A comparison of intra-Community export and world export-related employment revels the existence of production sectors where over 50% of the jobs depend upon trade within the Subregion. In selecting the sectors, the three headings that are most dependent on intra-Community trade and in which more than 1,000 jobs were created in 2000, were considered.

In Bolivia, intra-Community export-generated jobs in the Diverse Food Products sector amount to over 82% of that sector’s world export-related employment. Agroindustrial Products (25.2%) and Textiles, Garments and Leather Goods (22.5%) are other sectors where the numbers, while smaller, still represent significant percentages.

Some 99% of the trade-related employment in Colombia’s Dairy Products sector can be attributed to exports to the Andean Community, as can 80.4% in the country’s Transportation equipment sector and 76% in its Beverage sector.

The Andean market is an important source of jobs for Ecuador. Intra-Community export-related jobs account for over 82% of all export-generated employment in Cereal Cultivation, Manufacture of Transportation Equipment, Milling and Bakery Production, the making and preserving of Meat Products, and the Manufacture of Rubber and Plastic Products.

Peru, unlike the cited Andean countries, has no sectors where new jobs depend heavily upon its trade with the Community. Intra-regional export-related jobs in only the Rubber and Plastic Products and Other Chemical Products sectors account for 68% and 49%, respectively, of all world export-generated employment in those industries.

Venezuela’s case is similar to that of Peru, for the sectors where the most intra-Community export-related jobs were created, Textile Products (66%), Tobacco Products (65%), and Rubber and Plastic Products (42%), do not depend heavily on those exports.

 

1 The Presidents of Bolivia, Colombia, Ecuador, Peru and Venezuela signed the Act of Barahona during their Cartagena summit held on December 3-5, 1991.

2 This theory rests on several hypotheses:

  • Each good is produced by a single industry or production sector, meaning that there are no secondary goods.
  • Each sector purchases inputs in accordance with its output; a given output, therefore, requires inputs in specific proportions.
  • If a given sector boosts production heavily, it will require a larger input, which will become available in proportion to the increase in output; no bottlenecks will be able to impede that growth in production.

Similar exercises were conducted to calculate export-related employment under the Andean Tariff Preferences Act (ATPA) and by the Generalized System of Andean Preferences.

3 Only Peru and Ecuador supplied information about the gainfully employed population for the production sectors covered by the respective Input-Output Tables. Data produced by Purdue University’s General Trade Analysis Project, which estimated employment by dividing total earnings by per capita pay for each of the 50 economic sectors, was used for the cases of Bolivia, Colombia and Venezuela.

4 This figure refers only to workers earning salaries or wages in cash or in kind for their production activities. Independent workers and land-owning farmers are not considered. In the mid nineties (1994), 52% of the jobs in Peru (Source: INEI) and 39% in Colombia (Source: DANE) received no remuneration.

5 In 1999, GDP declined 4.3%, 6% and 7.3% in Colombia, Venezuela and Ecuador, respectively, and showed only modest growth in Bolivia (0.6%) and Peru (1.4%).