TY  - JOUR
AU  - Goldberg,Pinelopi K.
AU  - Pavcnik,Nina
TI  - The Response of the Informal Sector to Trade Liberalization
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9443
PY  - 2003
Y2  - January 2003
UR  - http://www.nber.org/papers/w9443
L1  - http://www.nber.org/papers/w9443.pdf
N1  - Author contact info:
Pinelopi K. Goldberg
Yale University
Department  of Economics
37 Hillhouse Ave.
P.O. Box 208264
New Haven, CT 06520-8264
E-Mail: penny.goldberg@yale.edu

Nina Pavcnik
Department of Economics
6106 Rockefeller Center
Dartmouth College
Hanover, NH  03755
Tel: 603/646-2537
Fax: 603/646-2122
E-Mail: nina.pavcnik@dartmouth.edu
AB  - This paper studies the relationship between trade liberalization and informality. It is often claimed that increased foreign competition in developing countries leads to an expansion of the informal sector, defined as the sector that does not comply with labor market legislation. Using data from two countries that experienced large trade barrier reductions in the 1980's and 1990's, Brazil and Colombia, we examine the response of the informal sector to liberalization. In Brazil, we find no evidence of a relationship between trade policy and informality. In Colombia, we do find evidence of such a relationship, but only for the period preceding a major labor market reform that increased the flexibility of the Colombian labor market. These results point to the significance of labor market institutions in assessing the effects of trade policy on the labor market.
ER  -