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Preferential Trade Agreements, Unemployment, and the Informal Sector

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  • Heid, Benedikt

Abstract

What are the welfare and employment consequences of preferential trade agreements (PTAs) for developing and emerging countries? Standard quantitative models of international trade which are generally used to assess the impact of PTAs assume full employment and hence abstract from (net) employment effects. This paper presents a quantitative framework to study the welfare and employment effects of PTAs taking into account the key feature of labor markets in emerging economies: A large share of workers is employed in the informal sector which is characterized by low productivity and hence lower wages than those in the formal part of the economy. To illustrate, I apply this framework to a set of 13 Latin American and Caribbean countries to evaluate observed trade liberalization episodes since 1950, taking into account the general equilibrium trade diversion and income effects of PTAs which have been neglected in the literature so far.

Suggested Citation

  • Heid, Benedikt, 2014. "Preferential Trade Agreements, Unemployment, and the Informal Sector," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100376, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc14:100376
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    Cited by:

    1. Larch, Mario & Yotov, Yoto, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," School of Economics Working Paper Series 2016-9, LeBow College of Business, Drexel University.

    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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