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Heterogeneous firms and informality: the effects of trade liberalization on labour markets

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  • Dennis Becker

Abstract

The informal sector is often seen as a way for firms to evade regulation. In this paper, I therefore investigate the role of the informal sector in the impact of trade liberalization on employment, wage inequality and welfare in a model of trade with heterogeneous firms and endogenous wage dispersion. The findings suggest that trade liberalization reduces informal employment unambiguously. Contrary to the extant literature, however, its impact on total salaried employment, wage inequality and welfare is country-specific.

Suggested Citation

  • Dennis Becker, 2018. "Heterogeneous firms and informality: the effects of trade liberalization on labour markets," Oxford Economic Papers, Oxford University Press, vol. 70(1), pages 47-72.
    • Handle: RePEc:oup:oxecpp:v:70:y:2018:i:1:p:47-72.
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    References listed on IDEAS

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    Cited by:

    1. Tanaka, Kiyoyasu & Greaney, Theresa M., 2024. "Trade and employment in the formal and informal sectors: A natural experiment from Cambodia," Journal of Asian Economics, Elsevier, vol. 90(C).
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    3. Perra, Elena & Sanfilippo, Marco & Sundaram, Asha, 2024. "Roads, competition, and the informal sector," Journal of Development Economics, Elsevier, vol. 171(C).
    4. Hayakawa, Kazunobu & Keola, Souknilanh & Sudsawasd, Sasatra & Yamanouchi, Kenta, 2025. "International bridges and informal employment," Journal of Comparative Economics, Elsevier, vol. 53(3), pages 667-682.
    5. Rihab Bellakhal & Hend Ghazzai & Rim Lahmandi‐Ayed, 2024. "Globalisation and informality: The role of quality gap and social contributions," The World Economy, Wiley Blackwell, vol. 47(7), pages 3120-3149, July.
    6. HAYAKAWA,Kazunobu & KEOLA, Souknilanh & SUDSAWASD, Sasatra & YAMANOUCHI, Kenta, 2024. "International Bridges and Informality," IDE Discussion Papers 914, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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