Working Paper: CEPR ID: DP8805
Authors: Emanuel Ornelas
Abstract: Labor market consequences are at the forefront of most debates on the merits of trade liberalization. Preferential trade agreements (PTAs) have become the primary form of trade liberalization in most countries, and several studies have shown that discriminatory and non-discriminatory trade liberalization can lead to very different outcomes. Yet to date there has not been any attempt to study the specific labor market implications of preferential liberalization. In this article I argue that the labor market consequences of unilateral or multilateral non-discriminatory trade liberalization and those stemming from integration in the context of PTAs can indeed be quite distinct, and therefore the latter must be given closer scrutiny. I provide a short summary of both the theoretical literature on trade and the labor market and the literature on preferential liberalization. Relying on the insights from those two?largely independent?lines of research, I then discuss why liberalization through PTAs can have consequences for the labor market that are considerably different from the effects of lowering trade barriers in a non-discriminatory fashion. Examples of areas where those differences are likely to be meaningful include the nature of labor market adjustment costs, the incentives for firms to start exporting, and the effects on ?job rents.?
Keywords: labor; frictions; trade diversion; trade liberalization; unemployment
JEL Codes: F13; F15; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Preferential Trade Agreements (PTAs) (F13) | distinct labor market consequences (F66) |
| Preferential Trade Agreements (PTAs) (F13) | employment levels (J23) |
| Preferential Trade Agreements (PTAs) (F13) | wage dynamics (J31) |
| Preferential Trade Agreements (PTAs) (F13) | trade preferences for member countries (F13) |
| trade preferences for member countries (F13) | trade diversion (F14) |
| trade diversion (F14) | efficiency of resource allocation (D61) |
| trade creation (F14) | expansion in employment (J23) |
| trade creation (F14) | expansion in wages (J39) |
| trade diversion (F14) | changes in employment levels (J63) |
| Preferential Trade Agreements (PTAs) (F13) | reallocation of resources (D61) |
| reallocation of resources (D61) | productivity (O49) |
| productivity (O49) | average wages (J31) |