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The Impact of Trade Liberalization on Skill Upgrading Evidence from Argentina

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  • Paula Bustos

Abstract

The integration of developing countries in the world economy during the last three decades has often coincided with increases in the skill premium. These trends are at odds the predictions of the Heckscher-Ohlin trade model where trade opening in skill-scarce developing countries leads to a reduction in the skill premium. Thus, the recent literature has proposed several alternative channels through which trade liberalization can increase the relative demand for skill in developing countries. In particular, the empirical finding that exporters are more skillintensive than non-exporters suggests that expanded export opportunities might induce firms to upgrade skill. In this paper I present a model where trade liberalization induces the most productive firms (exporters) to adopt skill-intensive production technologies. I test the model in the context of a regional free trade agreement, MERCOSUR. I find that the increase in the relative demand of skilled labor does not come from labor reallocation across sectors or firms but from skill upgrading within firms. In addition, firms that upgrade technology faster also upgrade skill faster. Finally, I find that the reduction in Brazil's tariffs induces the most productive Argentinean firms to upgrade skill, while the least productive ones downgrade, as predicted by the model.

Suggested Citation

  • Paula Bustos, 2011. "The Impact of Trade Liberalization on Skill Upgrading Evidence from Argentina," Working Papers 559, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:559
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    trade; technology; skills;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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