Sectoral and regional distribution of export shocks

This study explores the impact of export shocks on firms and re-aggregates results to derive distributional effects on sectors and regions. In a first step, firm level data are used to assess the empirical relationship between exports and three outcome variables – labour productivity, employment and wages. In a second step, an illustrative set of changes in trading relationships generate sectoral export shocks, which are simulated with the OECD METRO model of trade and subsequently fed into micro-level estimates. The method developed in this study can be applied to other countries, conditional on the availability of data. As an initial case study, the analysis is for the United Kingdom which has weak regional productivity outside London, partly related to sectoral and trade specialisation. In particular, the most productive regions are specialised in knowledge-intensive services and are more intensive in tradable services. The results suggest limited impacts of export shocks on sectoral employment, except for car and truck manufacturing, consistent with a high integration of the sector with European value chains. Labour productivity and wages are negatively affected across most sectors, but the effects are smaller on the services sector relative to the goods sector. Given that services activities are concentrated in more productive regions, these regions are more resilient to shocks. The United Kingdom has a strong comparative advantage in services sectors and promoting the opening of global services markets would be an important way to offset potential negative impacts of export shocks on the other sectors of the economy.