The Response of the Informal Sector to Trade Liberalization

50 Pages Posted: 16 Jan 2003 Last revised: 11 Jun 2003

See all articles by Pinelopi Goldberg

Pinelopi Goldberg

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Nina Pavcnik

Dartmouth College - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2003

Abstract

This paper studies the relationship between trade liberalization and informality. It is often claimed that increased foreign competition in developing countries leads to an expansion of the informal sector, defined as the sector that does not comply with labor market legislation. Using data from two countries that experienced large trade barrier reductions in the 1980's and 1990's, Brazil and Colombia, we examine the response of the informal sector to liberalization. In Brazil, we find no evidence of a relationship between trade policy and informality. In Colombia, we do find evidence of such a relationship, but only for the period preceding a major labor market reform that increased the flexibility of the Colombian labor market. These results point to the significance of labor market institutions in assessing the effects of trade policy on the labor market.

Suggested Citation

Goldberg, Pinelopi (Penny) and Pavcnik, Nina, The Response of the Informal Sector to Trade Liberalization (January 2003). NBER Working Paper No. w9443. Available at SSRN: https://ssrn.com/abstract=370427

Pinelopi (Penny) Goldberg (Contact Author)

Yale University - Department of Economics ( email )

P.O. Box 208268
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National Bureau of Economic Research (NBER)

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Yale University - Cowles Foundation

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Nina Pavcnik

Dartmouth College - Department of Economics ( email )

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603-646-2537 (Phone)
603-646-2122 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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