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Trade reform and regional dynamics : evidence from 25 years of Brazilian matched employer-employee data

Listed author(s):
  • Dix Carneiro,Rafael
  • Kovak,Brian K.
Registered author(s):

    This paper empirically studies the dynamics of labor market adjustment following the Brazilian trade reform of the 1990s. The paper uses variation in industry-speci?c tari? cuts interacted with initial regional industry mix to measure trade-induced local labor demand shocks and examines regional and individual labor market responses to those one-time shocks over two decades. Contrary to conventional wisdom, the analysis does not ?nd that the impact of local shocks is dissipated over time through wage-equalizing migration. Instead, it ?nds steadily growing e?ects of local shocks on regional formal sector wages and employment for 20 years. This ?nding can be rationalized in a simple equilibrium model with two complementary factors of production, labor and industry-speci?c factors such as capital, that adjust slowly and imperfectly to shocks. Next, the paper documents rich margins of adjustment induced by the trade reform at the regional and individual levels. Workers initially employed in harder hit regions face continuously deteriorating formal labor market outcomes relative to workers employed in less a?ected regions, and this gap persists even 20 years after the beginning of trade liberalization. Negative local trade shocks induce workers to shift out of the formal tradable sector and into the formal nontradable sector. Non-employment strongly increases in harder hit regions in the medium run, but in the longer run, non-employed workers eventually ?nd re-employment in the informal sector. Working age population does not react to these local shocks, but formal sector net migration does, consistent with the relative decline of the formal sector and growth of the informal sector in adversely a?ected regions.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 7205.

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    Date of creation: 02 Mar 2015
    Handle: RePEc:wbk:wbrwps:7205
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    1. Costa, Francisco & Garred, Jason & Pessoa, João Paulo, 2016. "Winners and losers from a commodities-for-manufactures trade boom," Journal of International Economics, Elsevier, vol. 102(C), pages 50-69.
    2. Fajnzylber, Pablo & Maloney, William F. & Montes-Rojas, Gabriel V., 2011. "Does formality improve micro-firm performance? Evidence from the Brazilian SIMPLES program," Journal of Development Economics, Elsevier, vol. 94(2), pages 262-276, March.
    3. Monras, Joan, 2015. "Economic Shocks and Internal Migration," IZA Discussion Papers 8840, Institute for the Study of Labor (IZA).
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    11. Kondo, Illenin O., 2013. "Trade Reforms, Foreign Competition, and Labor Market Adjustments in the U.S," International Finance Discussion Papers 1095, Board of Governors of the Federal Reserve System (U.S.).
    12. Neri, Marcelo Cortes & Moura, Rodrigo Leandro de, 2005. "La institucionalidad del salario mínimo en Brasil," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 607, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    13. Claire H. Hollweg & Daniel Lederman & Diego Rojas & Elizabeth Ruppert Bulmer, 2014. "Sticky Feet : How Labor Market Frictions Shape the Impact of International Trade on Jobs and Wages," World Bank Publications, The World Bank, number 18777, April.
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    15. 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.
    16. Nina Pavcnik & Andreas Blom & Pinelopi Goldberg & Norbert Schady, 2004. "Trade Liberalization and Industry Wage Structure: Evidence from Brazil," World Bank Economic Review, World Bank Group, vol. 18(3), pages 319-344.
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