New research by Assistant Professor of Economics Hoang Pham looked at how a 2001 trade agreement between the U.S. and Vietnam helped and hurt the economic outcomes of Vietnamese children
By Colin Bowyer, Communications Manager - December 12, 2024
Intergenerational mobility is an important indicator of economic development in emerging economies. An improvement in intergenerational mobility is found to be highly associated with higher economic growth, faster poverty reduction, lower inequality, and a more stable society. Given that globalization is believed to have played a significant role in promoting economic growth worldwide, particularly in the low- and middle-income countries, it is important to understand whether international trade reinforces or diminishes the persistence of socioeconomic status across generations.
Using survey data in Vietnam, a new working paper by Assistant Professor of Economics Hoang Pham in the School of Public Policy examines the extent of how trade liberalization affects absolute and relative occupational mobility. Pham and his co-authors found that greater trade between Vietnam and the United States, as a result of the US-Vietnam Bilateral Trade Agreement (BTA) in 2001, increased absolute occupational mobility for younger boys and girls, yet this effect is not necessarily equal between children across different socioeconomic backgrounds.
Pham and his co-authors utilized 16 years of the Vietnam Household Living Standards Surveys (VHLSSs), a state-run survey, designed and supported by the World Bank, for policy-making and socio-economic development planning, to examine the changes in occupational mobility.
Trade liberalization in Vietnam within the past two decades provides an ideal context to link exports to mobility. Since 2001, Vietnam has experienced massive export growth due to the BTA, which has resulted in a significant reallocation of resources towards export-oriented sectors in response to an increase in demand.
“A person’s occupation is likely to be directly related to their welfare through income and job stability,” explained Pham. “Also, in an emerging economy, a person’s occupation is more than likely affected by the country’s specialization, like manufacturing, and consequent skill demand.”
The results contained some surprising developments. New opportunities in the export market increased absolute occupational mobility, i.e. today’s younger children have better outcomes (occupations) overall, compared to their parents; however, the BTA led to a decline in relative occupational mobility, i.e. children born to top-ranked parents benefit more from the opportunities created by the BTA, relative to those born to bottom-ranked parents.
Pham’s findings have several important implications. First and most importantly, increased trade may help overcome frictions, social structures, or barriers that impede intergenerational mobility. Trade opens new opportunities for younger generations, leading to more upward mobility. Second, if trade can promote mobility and help high-ability individuals obtain better jobs, this can generate additional long-term gains from trade through a more efficient allocation of human capital. However, a possible caveat is that while trade can improve outcomes of younger generations relative to their parents, a child born to top-ranked parents might be better prepared to benefit from new opportunities created by trade.
“These results were unexpected,” said Pham. “Increased trade helped absolute occupational mobility for younger populations across the board, yet increased inequality across generations with the wealthiest families seeing the greatest benefit. Generally, globalization is viewed as a positive in developing countries, but the increased inequality it creates is concerning, particularly in less developed provinces.”
The policy implications for Pham’s working paper point to the need for a greater investment in education, not just in Vietnam, but in pre-industrial economies. If younger adults are more prepared for globalization, i.e. more educated, the better outcomes they’ll experience.
The paper, “Exports and Intergenerational Mobility,” builds off Pham’s previous research on the effects of the BTA on labor market power, i.e. the ability of an employer to leverage its position in the economy to influence wages and employment conditions. Pham and his co-authors found in the August 2024 working paper that firms were paying women less than men, but women had more occupational mobility, as a result of the BTA.