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The Impacts of Trade Liberalization on Employment and Wages in Tunisian Industries

  • Haouas, Ilham

    ()

    (Abu Dhabi University)

  • Yagoubi, Mahmoud

    ()

    (University of Paris 1 Panthéon-Sorbonne)

  • Heshmati, Almas

    ()

    (Jönköping University, Sogang University)

This paper investigates short and long-run effects of trade liberalization on employment and wages. Employment and wage equations are estimated using data (1971–96) for importable and exportable sectors in Tunisia. Causality tests show that causality is unidirectional. Wages strongly causes employment but employment does not cause wages. There is significant difference in the direction of responses in the short and long run. Results from empirical testing using the models find only support for the short-run theoretical predictions for the exportable sector. Similar results obtained for the importable sectors. We find the differences in the short and long-run wage and employment responses to changes in export to be explained by learning by doing, organizational changes and improved factor utilization and labour productivity. A possible reason for the divergence of theory and practice is that the theoretical model is premised on the basis of a fixed supply of labour. Exportable employment could therefore only rise if importable employment fell. However, as we have seen, the supply of labour increased dramatically in Tunisia as women entered the labour market. This allowed importable employment to be maintained (even slightly increased) as the exportable sector expanded.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 688.

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Length: 31 pages
Date of creation: Jan 2003
Date of revision:
Publication status: published in: Journal of International Development, 2005, 17 (4), 527-551
Handle: RePEc:iza:izadps:dp688
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  1. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 775-91, October.
  2. John M. Abowd & Thomas Lemieux, 1991. "The Effects of International Competition on Collective Bargaining Outcomes: A Comparison of the United States and Canada," NBER Chapters, in: Immigration, Trade, and the Labor Market, pages 343-367 National Bureau of Economic Research, Inc.
  3. Levinsohn, James, 1999. "Employment responses to international liberalization in Chile," Journal of International Economics, Elsevier, vol. 47(2), pages 321-344, April.
  4. Arulampalam, W. & Robin A. Naylor & Jeremy P. Smith, 2002. "University of Warwick," Royal Economic Society Annual Conference 2002 9, Royal Economic Society.
  5. Beyer, Harald & Rojas, Patricio & Vergara, Rodrigo, 1999. "Trade liberalization and wage inequality," Journal of Development Economics, Elsevier, vol. 59(1), pages 103-123, June.
  6. Milner, Chris & Wright, Peter, 1998. "Modelling Labour Market Adjustment to Trade Liberalisation in an Industrialising Economy," Economic Journal, Royal Economic Society, vol. 108(447), pages 509-28, March.
  7. Dong, Xiao-yuan, 1998. "Employment and Wage Determination in China's Rural Industry: Investigation Using 1984-1990 Panel Data," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 485-501, September.
  8. Dornbusch, Rudiger, 1974. "Tariffs and nontraded goods," Journal of International Economics, Elsevier, vol. 4(2), pages 177-185, May.
  9. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February.
  10. Heyman, Fredrik, 2001. "Wage Dispersion and Allocation of Jobs," SSE/EFI Working Paper Series in Economics and Finance 479, Stockholm School of Economics.
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