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Home > Data & Research > Research > Programs > Trade Research

Adjusting to trade policy reform, Volume 1

Author:	Matusz, Steven J.; Tarr, David;	Collection Title:	Policy, Research working paper ; no. WPS 2142
Date Stored:	2001/04/25	Document Date:	1999/07/31
Document Type:	Policy Research Working Paper	Language:	English
Major Sector:	(Historic)Economic Policy	Report Number:	WPS2142
Sub Sectors:	Trade	SubTopics:	Environmental Economics & Policies; Economic Theory & Research; Free Trade; Trade Policy; Health Monitoring & Evaluation; Labor Policies; Public Health Promotion; Decentralization
Volume No:	1

Summary: Virtually all of the studies that quantify the adjustment costs of trade liberalization relative to the benefits point to the conclusion that adjustment costs are small in relation to the benefits of trade liberalization. The explanation for low adjustment costs is that: These costs are typically short-term and end when workers find a job, but the benefits grow as the economy does. Unemployment doesn't last long, especially where workers' pay was not substantial in the original job. Normal labor turnover often exceeds job displacement from trade liberalization. Moreover, studies that examine the impact of trade liberalization on employment in developing countries find there is little decline--and usually an increase--in manufacturing employment in developing countries a year after trade liberalization, for three reasons: 1) Developing countries tend to have comparative advantage in labor-intensive industries, and trade liberalization tends to favor labor. 2) Inter-industry shifts occur after trade liberalization, which minimizes the dislocation of factors of production. 3) In many industries, normal labor turnover exceeds dislocation from trade liberalization, so downsizing, when necessary can be accomplished without much forced unemployment. The authors recommend a uniform tariff to minimize special-interest lobbying for protection since it diffuses the benefits of protection.


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	PDF 60 pages	WPS2142	0.11

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