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

• Author(s): Rafael Machado Parente, Rowan Shi,
• Publisher: International Monetary Fund
• Pages: 44
• ISBN_13: 9798400263033
  
• Language: en
• Categories: Business & Economics / Economics / Macroeconomics , Business & Economics / Economics / General ,

Description:... 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.