IDEAS home Printed from
   My bibliography  Save this paper

Trade Shocks in Brazil: An Investigation of Effects on Regional Manufacturing Wages


  • Filipe Lage-De-Sousa



Brazil has experienced two trade shocks in the 90’s: unilateral liberalization, which weighted average nominal tariff reduced from 37.7% in 1988 to 10.2% in 1994; drastically real devaluation of 47% in the exchange rate in 1999. These two effects has influenced the location of industry in Brazil, since the industry center of Brazil, Sao Paulo State, reduced its participation in the industry sector from 52% in 1985 to 43% in 2002. This occurs when the dispersion forces overcome the agglomeration ones. The main dispersion force evidenced by the literature is the increase of competition, not only in the goods market (a new product), but also in the factor market (demand of labor, which increases wages). In a trade agreement, the most common trade shock, these two forces occurred simultaneously. At this case, it is possible to distinguish between two dispersion forces: competition of the imported goods (first shock); competition in the labor market (second shock). One way to evaluate these effects can be by investigating the effectiveness of transport cost to understand the regional differences in wages and if it has reduced (or increased) its explanation power after the trade shock. In order to do that, the methodology of Hanson 1997 will be used as a basic framework. It is possible to analyze the effects of these trade shocks in the disparities of regional wages in Brazil with his methodology. However, there will be some differences to his framework. First, Hanson uses state level data and this paper has a more disaggregated regional data (microregion, which divides Brazil into more than 500 parts). Second, Hanson doesn’t take into account any change in educational level, infrastructure improvement or government intervention, which are considered in this investigation. The first results show that transport cost is important to understand differences in wages between Brazilian microregions and trade shocks have influenced in some sense these disparities, but not so consistently as transport costs. Moreover, it seems that dispersion force of the second shock was greater than the first one, therefore, competition to hire new employees expel more plants to lower wages regions than comptetion with new products.

Suggested Citation

  • Filipe Lage-De-Sousa, 2006. "Trade Shocks in Brazil: An Investigation of Effects on Regional Manufacturing Wages," ERSA conference papers ersa06p441, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa06p441

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Krugman, Paul & Elizondo, Raul Livas, 1996. "Trade policy and the Third World metropolis," Journal of Development Economics, Elsevier, vol. 49(1), pages 137-150, April.
    2. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    3. André Rodríguez-Pose, 2001. "Strategies of Waste: Bidding Wars in the Brazilian Automobile Sector," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 25(1), pages 134-154, March.
    4. Hanson, Gordon H, 1997. "Increasing Returns, Trade and the Regional Structure of Wages," Economic Journal, Royal Economic Society, vol. 107(440), pages 113-133, January.
    5. Hanson, Gordon H, 1996. "Localization Economies, Vertical Organization, and Trade," American Economic Review, American Economic Association, vol. 86(5), pages 1266-1278, December.
    6. Henry Overman & L. Alan Winters, 2003. "Trade Shocks and Industrial Location: the Impact of EEC Accession on the UK," CEP Discussion Papers dp0588, Centre for Economic Performance, LSE.
    7. J. Vernon Henderson, 1996. "Ways to Think about Urban Concentration: Neoclassical Urban Systems versus the New Economic Geography," International Regional Science Review, , vol. 19(1-2), pages 31-36, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa06p441. 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: (Gunther Maier). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.