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Trade liberalization and informality in Argentina: exploring the adjustment mechanisms

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Listed:
  • Guillermo Cruces

    () (Universidad Nacional de La Plata (UNLP), Argentina
    Comisión Nacional de Investigaciones Científicas y Técnicas (CONICET)
    Institute for the Study of Labor (IZA))

  • Guido Porto

    () (Universidad Nacional de La Plata (UNLP), Argentina)

  • Mariana Viollaz

    () (Universidad Nacional de La Plata (UNLP), Argentina)

Abstract

Abstract This paper studies the link between trade reforms and labor informality in Argentina using a long time series spanning the 1980–2001 period. We explore cross-section mechanisms, that operate at the industry level, and time-series mechanisms, that operate at a general equilibrium level. We argue that firms can substitute formal with informal workers to smooth a negative trade shock. In this setting, industries exposed to larger tariffs cuts could experience increases in informality. In general equilibrium, there can be additional aggregate impacts in both manufacturing and non-traded sectors through workers reallocation among sectors, wage adjustments, and firm entry and exit. Using the cross-section variation of the data and an instrumental variable strategy we explore empirically the cross-section mechanisms. We find that reductions in industry tariffs increase labor informality, and the effect is differentially stronger in industries with a larger share of small-size firms. Using the time-series variation of the data, we are able to identify some of the general equilibrium effects. We find that the fall in the average national tariff decreased aggregate informality in the manufacturing sector but increased it in the non-traded sector.

Suggested Citation

  • Guillermo Cruces & Guido Porto & Mariana Viollaz, 2018. "Trade liberalization and informality in Argentina: exploring the adjustment mechanisms," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 27(1), pages 1-29, December.
  • Handle: RePEc:spr:laecrv:v:27:y:2018:i:1:d:10.1186_s40503-018-0061-1
    DOI: 10.1186/s40503-018-0061-1
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Safojan, Romina, 2019. "The Effect of Exports on Labor Informality : Evidence from Argentina," Discussion Paper 2019-003, Tilburg University, Center for Economic Research.
    2. Pamela Bombarda & Sarra Ben Yahmed, 2017. "Gender, Informal Employment and Trade Liberalization in Mexico," THEMA Working Papers 2017-03, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    3. Rafael Dix-Carneiro & Brian K. Kovak, 2017. "Margins of Labor Market Adjustment to Trade," NBER Working Papers 23595, National Bureau of Economic Research, Inc.
    4. Rafael Dix-Carneiro & Brian K. Kovak, 2015. "Trade Reform and Regional Dynamics: Evidence From 25 Years of Brazilian Matched Employer-Employee Data," Upjohn Working Papers and Journal Articles 15-225, W.E. Upjohn Institute for Employment Research.
    5. Leonardo Gasparini & Guillermo Cruces & Leopoldo Tornarolli, 2016. "Chronicle of a Deceleration Foretold: Income inequality in Latin America in the 2010s," CEDLAS, Working Papers 0198, CEDLAS, Universidad Nacional de La Plata.
    6. Rafael Dix-Carneiro & Brian K. Kovak, 2015. "Trade Reform and Regional Dynamics: Evidence From 25 Years of Brazilian Matched Employer-Employee Data," NBER Working Papers 20908, National Bureau of Economic Research, Inc.
    7. Dix Carneiro,Rafael & Kovak,Brian K., 2015. "Trade reform and regional dynamics : evidence from 25 years of Brazilian matched employer-employee data," Policy Research Working Paper Series 7205, The World Bank.

    More about this item

    Keywords

    Trade liberalization; Labor informality; Cross-section mechanisms; Time-series mechanisms; Argentina;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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