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Regional Labor Market Effects of Trade Policy: Evidence from Brazilian Liberalization

Author

Listed:
  • Brian K. Kovak

    (University of Michigan)

Abstract

This paper quantiÞes the effects of trade liberalization on local labor market outcomes and workers' migration patterns. I extend the classic specific-factors model to examine the impact of national price changes on local labor markets. The model describes how tariff changes across industries affect wages in local labor markets within the liberalizing country. In particular, wages will fall in regions whose workers are concentrated in industries facing the largest tariff cuts, and workers will then migrate away from these regions in favor of areas facing smaller tariff cuts. This result provides a theoretical foundation for a prevalent empirical approach in previous studies of local labor markets and lends economic interpretations to estimates that allow the researcher to evaluate the magnitude of results along with their direction. I then use these theoretical results to measure how BrazilÕs 1987-1995 trade liberalization affected wages and interstate migration within the country. I find that regions whose output faced a 10% larger liberalization-induced price decline experienced a 7% larger wage decline. In addition, liberalization resulted in a substantial shift in migration patterns. The most affected Brazilian states gained or lost approximately 2% of their populations as a result of liberalization- induced shifts in migration patterns. These results demonstrate the empirical value of the specific-factors framework developed here and represent the first systematic evaluation of the effects of liberalization on internal migration.

Suggested Citation

  • Brian K. Kovak, 2010. "Regional Labor Market Effects of Trade Policy: Evidence from Brazilian Liberalization," Working Papers 605, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:605
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    File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers576-600/r605.pdf
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    Cited by:

    1. Bernard Hoekman, 2017. "Trade in services: Opening markets to create opportunities," WIDER Working Paper Series 031, World Institute for Development Economic Research (UNU-WIDER).
    2. Brian, McCaig, 2011. "Exporting out of poverty: Provincial poverty in Vietnam and U.S. market access," Journal of International Economics, Elsevier, vol. 85(1), pages 102-113, September.
    3. Artuç, Erhan & McLaren, John, 2015. "Trade policy and wage inequality: A structural analysis with occupational and sectoral mobility," Journal of International Economics, Elsevier, vol. 97(2), pages 278-294.
    4. repec:bla:worlde:v:40:y:2017:i:2:p:439-461 is not listed on IDEAS

    More about this item

    Keywords

    Trade in Services;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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