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Trade liberalization and the evolution of skill earnings differentials in Brazil

  • Gonzaga, Gustavo
  • Menezes Filho, Naercio
  • Terra, Cristina

From 1988 to 1995, when trade liberalization was implemented in Brazil, relative earnings of skilled workers decreased. In this paper, we investigate the role of trade liberalization in explaining these relative earnings movements, by checking all the steps predicted by the Heckscher-Ohlin-style trade transmission mechanism. We find that: i) employment shifted from skilled to unskilled intensive sectors, and each sector increased its relative share of skilled labor; ii) relative prices felI in skill intensive sectors; iii) tariíf changes across sectors were not related to skill intensities, but the pass-through from tariffs to prices was stronger in skill intensive sectors; iv) the decline in skilled earnings differentials mandated by the price variation predicted by trade is very dose to the observed one. The results are compatible with trade liberalization, accounting for the observed relative earnings changes in Brazil.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 68 (2006)
Issue (Month): 2 (March)
Pages: 345-367

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Handle: RePEc:eee:inecon:v:68:y:2006:i:2:p:345-367
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. Daron Acemoglu, 2003. "Patterns of Skill Premia," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 199-230.
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  5. Jonathan E. Haskel & Matthew J. Slaughter, 2000. "Have Falling Tariffs and Transportation Costs Raised U.S. Wage Inequality?," NBER Working Papers 7539, National Bureau of Economic Research, Inc.
  6. Eli Berman & John Bound & Stephen Machin, 1997. "Implications of Skill-Biased Technological Change: International Evidence," Boston University - Institute for Economic Development 78, Boston University, Institute for Economic Development.
  7. Rudiger Dornbusch & Stanley Fischer & Paul A. Samuelson, 1980. "Heckscher-Ohlin Trade Theory with a Continuum of Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 203-224.
  8. Gonzaga, Gustavo Maurício & Menezes Filho, Naércio Aquino & Terra, Maria Cristina T., 2005. "Trade liberalization and the evolution of skill earnings differentials in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 585, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  9. Matthew J. Slaughter, 2000. "What Are the Results of Product-Price Studies and What Can We Learn from Their Differences?," NBER Chapters, in: The Impact of International Trade on Wages, pages 129-169 National Bureau of Economic Research, Inc.
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  15. Jere R. Behrman & Nancy Birdsall & Miguel Székely, 2003. "Economic Policy and Wage Differentials in Latin America," Working Papers 29, Center for Global Development.
  16. Alan B. Krueger, 1997. "Labor Market Shifts and the Price Puzzle Revisited," NBER Working Papers 5924, National Bureau of Economic Research, Inc.
  17. Miguel Székely & Nancy Birdsall & Jere R. Behrman, 2000. "Economics Reform and Wage Differentials in Latin America," IDB Publications (Working Papers) 6476, Inter-American Development Bank.
  18. Eli Berman & John Bound & Zvi Griliches, 1994. "Changes in the Demand for Skilled Labor within U. S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 367-397.
  19. Gordon H. Hanson & Ann Harrison, 1999. "Trade Liberalization and Wage Inequality in Mexico," ILR Review, Cornell University, ILR School, vol. 52(2), pages 271-288, January.
  20. Alan B. Krueger, 1997. "Labor Market Shifts and the Price Puzzle Revisited," Working Papers 754, Princeton University, Department of Economics, Industrial Relations Section..
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