American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Trade Liberalization and Regional Dynamics
American Economic Review
vol. 107,
no. 10, October 2017
(pp. 2908–46)
Abstract
We study the evolution of trade liberalization's effects on Brazilian local labor markets. Regions facing larger tariff cuts experienced prolonged declines in formal sector employment and earnings relative to other regions. The impact of tariff changes on regional earnings 20 years after liberalization was three times the effect after 10 years. These increasing effects on regional earnings are inconsistent with conventional spatial equilibrium models, which predict declining effects due to spatial arbitrage. We investigate potential mechanisms, finding empirical support for a mechanism involving imperfect interregional labor mobility and dynamics in labor demand, driven by slow capital adjustment and agglomeration economies. This mechanism gradually amplifies the effects of liberalization, explaining the slow adjustment path of regional earnings and quantitatively accounting for the magnitude of the long-run effects.Citation
Dix-Carneiro, Rafael, and Brian K. Kovak. 2017. "Trade Liberalization and Regional Dynamics." American Economic Review, 107 (10): 2908–46. DOI: 10.1257/aer.20161214Additional Materials
JEL Classification
- F16 Trade and Labor Market Interactions
- J23 Labor Demand
- J31 Wage Level and Structure; Wage Differentials
- J61 Geographic Labor Mobility; Immigrant Workers
- O15 Economic Development: Human Resources; Human Development; Income Distribution; Migration
- O19 International Linkages to Development; Role of International Organizations
- R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics