The Impacts of Trade on the Brazilian Labor Market: A CGE Model Approach

Abstract

The paper assesses the impacts of trade liberalization on macroeconomic variables and labor market indicators for the case of Brazil. The motivation is based on earlier debate on the role of trade liberalization in shaping out labor market outcomes in the well known Hecksher-Ohlin and Stolper-Samuelson (HOS) theorems. Countries that have adopted outer-oriented development strategies are reported to have reached higher rates of growth as compared to countries that have adopted the import substitution strategy [Krueger (1983), (1988)]. To address these issues for the case of Brazil, we use a computable general equilibrium (CGE) modeling approach to model the patterns of export growth by sector and their effects on macroeconomic and labor market indicators. The CGE modeling strategy allows for the investigation of inter-industry and employment linkages from export growth in particular sectors, productivity shocks, and export demand shocks. This methodology has been applied for a number of countries with different purposes and can offer a rich base of empirical simulations for analyzing quantitatively the effects of economic policies and external shocks on the domestic economy [Robinson et al. (1999)]. Overall our results have shown that trade liberalization contributes to improve economic welfare by means of greater output, lower domestic prices, and higher labor demand, but that the benefits of this economic improvement tend be appropriated by the most skilled workers in the most trade-oriented sectors, what is against the predictions of the HOS theorems.