International Trade and Household Businesses: Evidence from Vietnam
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Pavcnik, Nina; McCaig, Brian; Edmonds, Eric V.
Most workers in low-income countries work for a household business or a farm. We examine how export opportunities induced by the 2001 U.S.-Vietnam Bilateral Trade Agreement affect performance of non-farm household businesses in Vietnam. Household businesses in industries with greater declines in U.S. tariffs on Vietnamese exports expand revenue and are more likely to hire non-household members as workers. Moreover, the responses to tariff cuts differ with initial size of a household business. Initially small household businesses experience a contraction of revenue and are less likely to hold a business license in response to tariff cuts, while initially larger businesses account for the observed expansion of revenue within an industry in response to export opportunities. Our results, combined with the findings in McCaig and Pavcnik (2012), suggest that new export opportunities induced a reallocation of workers from informal household businesses to employers in the formal enterprise sector by the relative expansion of employment of firms in the formal sector.
Vietnam; export; household business; revenue