Research

CEPR Working Paper No. 17543.

This paper shows that self-employment shapes labor market power in low-income countries, with implications for industrial development. Using Peruvian data, we find that wage-setting power increases with employer concentration but less so where self-employment is more prevalent. A general equilibrium model shows that in oligopsonistic labor markets, self-employment raises the supply elasticity of wage labor, weakening employer market power. However, by the same mechanism, procompetitive policies aimed at expanding wage employment and reducing reliance on self-employment may unintentionally strengthen labor market power, undermining their objectives.

This paper studies quality upgrading to escape competition from low-wage countries and proposes a new channel that does not rely on access to new inputs or markets. Informed by Peruvian apparel firms' response to China's WTO accession, I introduce factor specificity in a multi-product-firm model. Profitability losses due to competition in low-quality segments induce Firms to reallocate specific factors to produce high-quality varieties for high-income countries. Gains from this channel are large. Using an observed quality measure, I show that import competition substantially increases domestic firms' exports and high-quality export shares. Firms also reduce prices, resulting in additional welfare gains.

This paper studies the gendered labor market and demographic effects of trade liberalization in Peru. To identify these effects, we use variation in the exposure of local labor markets to import competition from China based on their baseline industrial composition. On average, the increase in Chinese imports during 1998-2008 led to a persistent decline in the employment share of low-educated female workers but had smaller and transitory effects on the employment of low-educated men. In contrast to the predictions of Becker’s model of household specialization, we find that the increase in import competition during this period increased the share of single low-educated people and decreased their marriage rates. We also find suggestive evidence of a decline in fertility and an increase in the age at first birth. The results highlight the role of gains from joint consumption in marriage formation.

What are the short-term effects of an import-competition shock on capital reallocation and aggregate productivity? To address this question, we develop a quantitative model with heterogeneous firms and capital-reallocation frictions. We discipline the model with micro data on investment dynamics of Peruvian manufacturing firms and trade flows between China and Peru. Because of large frictions in firm downsizing and exit, an import-competition shock induces a temporary aggregate-productivity loss and larger dispersion in marginal products, due to investment inaction and exit of some productive firms. Empirical evidence on the effects of trade shocks on capital reallocation supports the model mechanism.

We study gender differences in the labor market reallocation of Peruvian workers in response to trade liberalization. The empirical strategy relies on variation in import competition across local labor markets based on their industrial composition before China entered the global market in 2001. In contrast to much of the existing literature, we find that import competition did not have persistent negative employment effects on men or led them to sort into the non-tradable or informal sectors. The adverse effects on the employment of low-educated women in the tradable sector, however, persist over time leading them to sort into the non-tradable sector or out of the labor force. The results are consistent with a mechanism in which gender occupational and industrial segregation leads to a widening of the gender gap in employment.

We examine how trade influences female labor supply through reductions in the prices of household appliances that substitute for domestic labor. Using a comprehensive data set from 1981 to 2017, which includes four population censuses, household surveys, and customs records from Peru, we show that labor force participation rose at the same time that appliance import prices fell. We then develop and estimate a dynamic general equilibrium model of trade and household production, to quantitatively evaluate the aggregate impact of declining appliance prices. We find that the reduction in appliance prices during the sample period leads to an increase in female labor force participation that explains one-tenth of the total rise in female labor participation in Peru over the past 30 years. However, the gender wage gap widens by approximately 3 percentage points in response to these changes.

Over the last four decades, many developing countries initiated reforms that have lowered barriers to trade. Yet despite these reforms, developing countries still remain far less open than developed ones, both because of tariffs that remain high but also weak contract and regulatory enforcement, inadequate transport infrastructure, search frictions, and a plethora of other distortions that are more severe in the developing world. This survey summarises a broad set of empirical work that explores the impact of international trade in developing countries characterised by weak institutions, market failures and firm distortions. For each of these categories we ask how the effects of trade policy may differ in the presence of such frictions, how trade may moderate or exacerbate the friction itself, and how policies should respond in the light of the answers to the first two questions.