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

Rafael Machado Parente and Rowan Shi

No 2023/265, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Gains from trade; trade liberalization; non-traded sector; firm Selection; import liberalization policy; importing behavior; trade shock; margin reallocation; reallocation effect; Imports; Labor markets; Trade policy; Employment (search for similar items in EconPapers)
Pages: 45
Date: 2023-12-22
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