Non-traded Gains From Trade - Selection in the Non-Traded Sector: Evidence from Brazil

December 22, 2023

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Rafael Machado Parente, and Rowan Shi. Non-traded Gains From Trade - Selection in the Non-Traded Sector: Evidence from Brazil, (USA: International Monetary Fund, 2023) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We investigate how trade shocks affect the allocation of labor across plants at the local labor market level. Using Brazil’s import liberalization as a quasi-natural experiment, we uncover a new margin for the gains from trade: the reallocation of labor from smaller to larger producers in the non-traded sector. We find that in response to liberalization, larger non-traded producers self-select into importing, expanding as they gain access to inputs from abroad. We then develop a parsimonious model of heterogeneous producers incorporating this mechanism. The theory is consistent with the empirical findings and show that reallocation among non-traded producers is welfare-enhancing. In contrast, this reallocation effect disappears when all nontraded producers make the same importing decision.

Subject: Employment, Imports, International trade, Labor, Labor markets, Trade liberalization, Trade policy

Keywords: Employment, Firm Selection, Gains from trade, Import liberalization policy, Importing behavior, Imports, Labor markets, Margin reallocation, Non-traded sector, Reallocation effect, Trade liberalization, Trade policy, Trade shock

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/265
Stock No:

WPIEA2023265
ISBN:

9798400263033
ISSN:

1018-5941

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