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When Does Trade Hurt? Market, Transition and Developing Economies

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  • Kala Krishna
  • Cemile Yavas

Abstract

This paper argues that labor market distortions in transition and developing economies help explain differential impacts of trade liberalization. We assume that workers differ in ability. In a market economy their earnings depend on their ability. However, earnings are independent of ability due to a common wage set in manufacturing in a transition economy and because of family farms in a developing economy. Our work suggests that trade liberalization without structural reform can have serious adverse effects in transition and developing economies: there can even be mutual losses from trade.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8995.

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Date of creation: Jun 2002
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Handle: RePEc:nbr:nberwo:8995

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  1. Kala Krishna & Cemile Yavas, . "Wage Equality in a General Equilibrium Model with Indivisibilities," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 01-12, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  2. Blanchard, Olivier & Kremer, Michael, 1997. "Disorganization," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1091-1126, November.
  3. Kala Krishna & Cemile Yavas, 2001. "Lumpy Consumer Durables, Market Power, and Endogenous Business Cycles," NBER Working Papers 8296, National Bureau of Economic Research, Inc.
  4. Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, Elsevier, vol. 4(2), pages 139-149, May.
  5. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(1), pages 98-116, February.
  6. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, American Economic Association, vol. 88(3), pages 478-94, June.
  7. Ng Yew Kwang, 1965. "Why do People Buy Lottery Tickets? Choices Involving Risk and the Indivisibility of Expenditure," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 73, pages 530.
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Cited by:
  1. Krishna, Kala & Yavas, Cemile, 2005. "When trade hurts: Consumption indivisibilities and labor market distortions," Journal of International Economics, Elsevier, Elsevier, vol. 67(2), pages 413-427, December.
  2. Anderson, Kym & Huang, Jikun & Ianchovichina, Elena, 2003. "Long-run impacts of China's WTO accession on farm-nonfarm income inequality and rural poverty," Policy Research Working Paper Series 3052, The World Bank.

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