NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

When Does Trade Hurt? Market, Transition and Developing Economies

Kala Krishna, Cemile Yavas

NBER Working Paper No. 8995
Issued in June 2002
NBER Program(s):   ITI

This paper argues that labor market distortions in transition and developing economies help explain differential impacts of trade liberalization. We assume that workers differ in ability. In a market economy their earnings depend on their ability. However, earnings are independent of ability due to a common wage set in manufacturing in a transition economy and because of family farms in a developing economy. Our work suggests that trade liberalization without structural reform can have serious adverse effects in transition and developing economies: there can even be mutual losses from trade.

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Document Object Identifier (DOI): 10.3386/w8995

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