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The Impact of Trade and Labor Market Regulations on Employment and Wages: Evidence from Developing Countries

Rana Hasan

No 32, Economics Study Area Working Papers from East-West Center, Economics Study Area

Abstract: This paper examines the effects of openness and labor market rigidity on labor market outcomes in the manufacturing sector using panel data from 48 developing countries. Results from reduced form equations for employment and wages suggest hat on average trade liberalization has had a weak impact on employment and wages. At the same time, however, the effects of trade liberalization is any given country are conditional on the nature of labor market regulations: trade liberalization is more likely to have a positive impact on employment and wages in countries with flexible labor markets and vice versa. Additionally, more regulated labor markets tend to have higher average wages but these appear to come at the expense of sector wide employment.

Date: 2001-08
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