The Impact of Trade Liberalization on Employment, Capital, and Productivity Dynamics: Evidence from the Uruguayan Manufacturing Sector

Abstract

This paper studies the impact of trade liberalization on labor and capital gross flows and productivity in the Uruguayan manufacturing sector. Uruguay opened its economy in the presence of -at least initially- strong unions and structurally different industry concentration levels. Higher international exposure implied slightly higher job creation and an important increase in job and capital destruction. Unions were able to dampen this effect. Although not associated with higher creation rates, unions were effective in reducing job and capital destruction. Industry concentration also was found to mitigate the destruction of jobs but had no effect on job creation or capital dynamics. The changes in the use of labor and capital were accompanied by an increase in total factor productivity, especially in sectors where tariff reductions were larger and unions were not present. The authors found no evidence of varying productivity dynamics across different industry concentration levels.