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When Does Trade Hurt? Market, Transition and Developing Economies

  • Kala Krishna
  • Cemile Yavas

This paper argues that labor market distortions in transition and developing economies help explain differential impacts of trade liberalization. We assume that workers differ in ability. In a market economy their earnings depend on their ability. However, earnings are independent of ability due to a common wage set in manufacturing in a transition economy and because of family farms in a developing economy. Our work suggests that trade liberalization without structural reform can have serious adverse effects in transition and developing economies: there can even be mutual losses from trade.

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File URL: http://www.nber.org/papers/w8995.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8995.

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Date of creation: Jun 2002
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Handle: RePEc:nbr:nberwo:8995
Note: ITI
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  1. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," William Davidson Institute Working Papers Series 38, William Davidson Institute at the University of Michigan.
  2. 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.
  3. Kala Krishna & Cemile Yavas, . "Wage Equality in a General Equilibrium Model with Indivisibilities," EPRU Working Paper Series 01-12, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  4. Brecher, Richard A., 1974. "Optimal commercial policy for a minimum-wage economy," Journal of International Economics, Elsevier, vol. 4(2), pages 139-149, May.
  5. Krishna, Kala & Yavas, Cemile, 2001. "Lumpy Consumer Durables, Market Power, and Endogenous Business Cycles," Working Papers 3-01-1, Pennsylvania State University, Department of Economics.
  6. Ng Yew Kwang, 1965. "Why do People Buy Lottery Tickets? Choices Involving Risk and the Indivisibility of Expenditure," Journal of Political Economy, University of Chicago Press, vol. 73, pages 530.
  7. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-94, June.
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