Trade Shocks in Brazil: An Investigation of Effects on Regional Manufacturing Wages
Brazil has experienced two trade shocks in the 90â€™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 doesnâ€™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.
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.:
- 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.
- Raul Livas Elizondo & Paul Krugman, 1992. "Trade Policy and the Third World Metropolis," NBER Working Papers 4238, National Bureau of Economic Research, Inc.
- Hanson, Gordon H, 1996. "Localization Economies, Vertical Organization, and Trade," American Economic Review, American Economic Association, vol. 86(5), pages 1266-1278, December.
- Gordon H. Hanson, 1994. "Localization Economies, Vertical Organization and Trade," NBER Working Papers 4744, National Bureau of Economic Research, Inc.
- 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.
- Henry G. Overman & L. Alan Winters, 2006. "Trade shocks and industrial location: the impact of EEC accession on the UK," LSE Research Online Documents on Economics 676, London School of Economics and Political Science, LSE Library.
- 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, 03.
- Rodríguez-Pose, Andrés & Arbixb, Glauco, 2000. "Strategies Of Waste: Bidding Wars In The Brazilian Automobile Sector," ERSA conference papers ersa00p505, European Regional Science Association.
- 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.
- 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.
- 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. Full references (including those not matched with items on IDEAS)
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)
If references are entirely missing, you can add them using this form.