The Response of the Informal Sector to Trade Liberalization

Pinelopi Goldberg and Nina Pavcnik

No 9443, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F10 F13 (search for similar items in EconPapers)
Date: 2003-01
New Economics Papers: this item is included in nep-dev and nep-lam
Note: ITI
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Citations: View citations in EconPapers (277)

Published as Goldberg, Pinelope Koujianou and Nina Pavcnik. "The Response of the Informal Sector to Trade Liberalization," Journal of Development Economics 72(2): 43-496, December 2003

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Journal Article: The response of the informal sector to trade liberalization (2003)
Working Paper: The Response of the Informal Sector to Trade Liberalization (2003)
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