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


  • Dix Carneiro,Rafael
  • Kovak,Brian K.


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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  • Dix Carneiro,Rafael & Kovak,Brian K., 2015. "Trade reform and regional dynamics : evidence from 25 years of Brazilian matched employer-employee data," Policy Research Working Paper Series 7205, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7205

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    References listed on IDEAS

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    Cited by:

    1. Luisito Bertinelli & Olivier Cardi & Romain Restout, 2015. "Technical Change Biased Toward the Traded Sector and Labor Market Frictions," Working Papers halshs-01252508, HAL.
    2. Pinelopi K. Goldberg & Nina Pavcnik, 2016. "The Effects of Trade Policy," NBER Working Papers 21957, National Bureau of Economic Research, Inc.
    3. 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.
    4. Keller, Wolfgang & Utar, Hale, 2016. "International Trade and Job Polarization: Evidence at the Worker-Level," CEPR Discussion Papers 11311, C.E.P.R. Discussion Papers.
    5. Sébastien Jean & Ariell Reshef, 2017. "Why Trade, and What Would Be the Consequences of Protectionism?," CEPII Policy Brief 2017-18, CEPII research center.
    6. Daron Acemoglu & David Autor & David Dorn & Gordon H. Hanson & Brendan Price, 2016. "Import Competition and the Great US Employment Sag of the 2000s," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 141-198.
    7. Guren, Adam & Hémous, David & Olsen, Morten, 2015. "Trade dynamics with sector-specific human capital," Journal of International Economics, Elsevier, vol. 97(1), pages 126-147.
    8. repec:eee:juecon:v:99:y:2017:i:c:p:1-14 is not listed on IDEAS
    9. Yuan Zi, 2016. "Trade Liberalization and the Great Labor Reallocation," IHEID Working Papers 18-2016, Economics Section, The Graduate Institute of International Studies.
    10. Sergio Urzua & Felipe Saffie & Felipe Benguria, 2017. "Demand Shocks and Labor Market Dynamics: Firm Level Responses to a Commodity Boom," 2017 Meeting Papers 1443, Society for Economic Dynamics.
    11. David H. Autor & David Dorn & Gordon H. Hanson, 2016. "The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 205-240, October.
    12. Isis Gaddis & Janneke Pieters, 2017. "The Gendered Labor Market Impacts of Trade Liberalization: Evidence from Brazil," Journal of Human Resources, University of Wisconsin Press, vol. 52(2), pages 457-490.

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    Economic Theory&Research; Regional Economic Development; Labor Markets; Labor Policies; Emerging Markets;

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