Trade Protection and Wages: Evidence from the Colombian Trade Reforms
Starting in 1985, Colombia experienced gradual trade liberalization that culminated in the drastic tariff reductions of 1990-91. This paper exploits these trade reforms to investigate the relationship between protection and wages. The focus of the analysis is on relative wages, defined as industry wage premiums relative to the economy-wide average wage. Using the June waves of the Colombian National Household Survey, we first compute wage premiums for the period 1984-98, adjusting for a series of worker characteristics, job and firm attributes, and informality. We find that industry wage premiums in Colombia exhibit remarkably less persistence over time than U.S. wage premiums. Similarly, measures of trade protection are less correlated over time than in the U.S. data, indicating that as a result of trade liberalization the structure of protection has changed. Regressions of wage premiums on tariffs, without industry fixed effects, produce a negative relationship between protection and wages; workers in protected sectors earn less than workers with similar observable characteristics in unprotected sectors. With fixed effects the results are reversed: Trade protection is found to increase relative wages. The effect is economically significant: Elimination of tariffs in an industry with an average level of protection in 1984 would lead to a 4% wage decline in this industry. For the most protected industries the effect increases to 7.3%. We also find that - in contrast to the U.S. - sectors with high import penetration in Colombia pay higher wages; nevertheless, regressions with industry fixed effects indicate that an increase of imports in a particular sector is associated with lower wages. The differences between the results with and without fixed effects are indicative of the importance of (time-invariant) political economy factors as determinants of protection. Further issues concerning the effects of trade liberalization, such as the relevance of time-variant political economy factors, the importance of employment guarantees, liberalization induced productivity changes, and the interplay of trade and labor reforms, will be investigated in a sequel paper.
|Date of creation:||Nov 2001|
|Date of revision:|
|Publication status:||published as Goldberg, Pinelope Koujianou and Nina Pavcnik. "Trade, Wages, and the Political Economy of Trade Protection: Evidence from the Colombian Trade Reforms," Journal of International Economics 66(1): 75-105, May 2005|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Zadia M. Feliciano, 2001. "Workers and Trade Liberalization: The Impact of Trade Reforms in Mexico on Wages and Employment," ILR Review, Cornell University, ILR School, vol. 55(1), pages 95-115, October.
- Harrison, Ann & Hanson, Gordon, 1999.
"Who gains from trade reform? Some remaining puzzles,"
Journal of Development Economics,
Elsevier, vol. 59(1), pages 125-154, June.
- Ann Harrison & Gordon Hanson, 1999. "Who Gains from Trade Reform? Some Remaining Puzzles," NBER Working Papers 6915, National Bureau of Economic Research, Inc.
- Pinelopi Koujianou Goldberg & Giovanni Maggi, 1997.
"Protection for Sale: An Empirical Investigation,"
NBER Working Papers
5942, National Bureau of Economic Research, Inc.
- Dani Rodrik, 1988. "Closing the Technology Gap: Does Trade Liberalization Really Help?," NBER Working Papers 2654, National Bureau of Economic Research, Inc.
- Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
- Pavcnik, Nina, 2003.
"What explains skill upgrading in less developed countries?,"
Journal of Development Economics,
Elsevier, vol. 71(2), pages 311-328, August.
- Nina Pavcnik, 2000. "What Explains Skill Upgrading in Less Developed Countries?," NBER Working Papers 7846, National Bureau of Economic Research, Inc.
- Helwege, Jean, 1992. "Sectoral Shifts and Interindustry Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 55-84, January.
- John P. Haisken-DeNew & Christoph M. Schmidt, .
"Inter-Industry and Inter-Region Differentials: Mechanics and Interpretation,"
9504, SELAPO Center for Human Resources.
- John P. Haisken-DeNew & Christoph M. Schmidt, 2000. "Interindustry and Interregion Differentials: Mechanics and Interpretation," The Review of Economics and Statistics, MIT Press, vol. 79(3), pages 516-521, August.
- Pravin Krishna & Devashish Mitra, .
"Trade Liberalization, Market Discipline and Productivity Growth: New Evidence From India,"
96-8, Brown University, Department of Economics.
- Krishna, Pravin & Mitra, Devashish, 1998. "Trade liberalization, market discipline and productivity growth: new evidence from India," Journal of Development Economics, Elsevier, vol. 56(2), pages 447-462, August.
- Adriana D. Kugler, 1999.
"The impact of firing costs on turnover and unemployment: Evidence from the Colombian labour market reform,"
Economics Working Papers
388, Department of Economics and Business, Universitat Pompeu Fabra.
- Adriana Kugler, 1999. "The Impact of Firing Costs on Turnover and Unemployment: Evidence from the Colombian Labour Market Reform," International Tax and Public Finance, Springer, vol. 6(3), pages 389-410, August.
- Ana Fernandes, 2002. "Trade Policy, Trade Volumes and Plant-Level Productivity in Colombian Manufacturing Industries," Working Papers 847, Economic Growth Center, Yale University.
- Kim, Euysung, 2000. "Trade liberalization and productivity growth in Korean manufacturing industries: price protection, market power, and scale efficiency," Journal of Development Economics, Elsevier, vol. 62(1), pages 55-83, June.
- Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
- Roberts, Mark J. & Tybout, James R., 1991.
"Size rationalization and trade exposure in developing countries,"
Policy Research Working Paper Series
594, The World Bank.
- Mark J. Roberts & James R. Tybout, 1991. "Size Rationalization and Trade Exposure in Developing Countries," NBER Chapters, in: Empirical Studies of Commercial Policy, pages 169-200 National Bureau of Economic Research, Inc.
- Roberts, M.J. & Tybout, J.R., 1990. "Size Rationalization And Trade Exposure In Developing Countries," Papers 5-90-2, Pennsylvania State - Department of Economics.
- Grossman, G.M. & Helpman, E., 1992.
"Protection for Sale,"
162, Princeton, Woodrow Wilson School - Public and International Affairs.
- Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
- Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
- Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
- Gene M. Grossman, 1984.
"International Competition and the Unionized Sector,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 17(3), pages 541-56, August.
- Gene M. Grossman, 1982. "International Competition and the Unionized Sector," NBER Working Papers 0899, National Bureau of Economic Research, Inc.
- Nina Pavcnik, 2002.
"Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants,"
Review of Economic Studies,
Oxford University Press, vol. 69(1), pages 245-276.
- Nina Pavcnik, 2000. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," NBER Working Papers 7852, National Bureau of Economic Research, Inc.
- Revenga, Ana, 1997. "Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S20-43, July.
- Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
- Cragg, Michael Ian & Epelbaum, Mario, 1996. "Why has wage dispersion grown in Mexico? Is it the incidence of reforms or the growing demand for skills?," Journal of Development Economics, Elsevier, vol. 51(1), pages 99-116, October.
- Harrison, Ann E & Leamer, Edward, 1997. "Labor Markets in Developing Countries: An Agenda for Research," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S1-19, July.
- Donald J. Robbins, 1996. "Evidence on Trade and Wages in the Developing World," OECD Development Centre Working Papers 119, OECD Publishing.
- Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8575. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.