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Local and spillover effects of trade on structural transformation: Evidence from Brazil

Author

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  • Hoyos, Mateo
  • Coronado, José Alejandro
  • Klein Martins, Guilherme

Abstract

This paper investigates the impact of trade liberalization on structural transformation, leveraging quasi-experimental tariff reductions from Brazil’s 1990s reforms. Building on recent cross-regional macroeconomic literature, we extend the traditional shift-share framework to estimate both local and spatial spillover effects on sectoral employment shares, providing insights into aggregate outcomes. Regions more exposed to tariff reductions experienced a reallocation of employment away from manufacturing and non-tradables and toward primary activities. Consistent with a comparative-advantage channel, the shift toward the primary sector is stronger in regions with higher agricultural potential. Spillover effects — mediated through migration or gravity — partially offset local deindustrialization in manufacturing but amplified declines in non-tradables. These effects persisted over two decades and remained robust to alternative structural transformation hypotheses, concurrent economic shocks, and controls for expenditure exposure. Overall, our findings support theories highlighting comparative advantage as a key driver of trade-induced structural transformation.

Suggested Citation

  • Hoyos, Mateo & Coronado, José Alejandro & Klein Martins, Guilherme, 2026. "Local and spillover effects of trade on structural transformation: Evidence from Brazil," Journal of Development Economics, Elsevier, vol. 183(C).
    • Handle: RePEc:eee:deveco:v:183:y:2026:i:c:s0304387826001239
    DOI: 10.1016/j.jdeveco.2026.103840
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    Keywords

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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