Winners and loser of trade liberalization: frictions, rigidities and reforms
- Trade liberalization generates aggregate gains, but also creates winners and losers.
- Tariff cuts hurt workers in import-competing sectors and benefit workers in other sectors.
- The ensuing distributional conflict depends on the frictions that govern markets for labor, finance and raw materials.
- Rigidities in labor markets may prevent the gains from trade; labor reforms may enhance those gains.
- But labor frictions are protection devices too: rigidities protect winning workers in export sectors from the 0inflow of trade-displaced workers.
- Complementary labor market reforms that accompany trade liberalization need careful scrutiny.Supporting knowledge transfer could reduce the differences between leader and laggard companies.
Guido Porto, Professor of Economics at the Universidad Nacional de La Plata, Argentina, and Research Associate at African Center for Economic Transformation, ACET, Ghana,
r4d Trade and Labor Market Outcomes project websites: