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Trade Liberalization and Informality in Argentina: Exploring the Adjustment Mechanisms

Author

Listed:
  • Guillermo Cruces

    (CEDLAS-FCE-UNLP, CONICET.)

  • Guido Porto

    (FCE-UNLP)

  • Mariana Viollaz

    (CEDLAS-FCE-UNLP)

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 between 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," CEDLAS, Working Papers 0229, CEDLAS, Universidad Nacional de La Plata.
  • Handle: RePEc:dls:wpaper:0229
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Sarra Ben Yahmed & Pamela Bombarda, 2020. "Gender, Informal Employment and Trade Liberalization in Mexico," World Bank Economic Review, World Bank Group, vol. 34(2), pages 259-283.
    3. Dix-Carneiro, Rafael & Kovak, Brian K., 2019. "Margins of labor market adjustment to trade," Journal of International Economics, Elsevier, vol. 117(C), pages 125-142.
    4. Camila Cisneros-Acevedo, 2021. "Unfolding Trade Effect in Two Margins of Informality. The Peruvian Case," CESifo Working Paper Series 9114, CESifo.
    5. Safojan, Romina, 2019. "The Effect of Exports on Labor Informality : Evidence from Argentina," Discussion Paper 2019-003, Tilburg University, Center for Economic Research.
    6. 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.

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    More about this item

    JEL classification:

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

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