UMD Theses and Dissertations
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Item ESSAYS ON INTERNATIONAL TRADE AND INEQUALITY(2009) Paz, Lourenco Senne; Limao, Nuno; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)In this dissertation I assess the impact of developing country trade liberalization on their wage inequality by focusing on two possible channels, namely job formality and inter-industry wage premium. Informal workers are a large share of the workforce, more than 30% in Brazil and Colombia, and this share within manufacturing has increased in some countries that underwent trade liberalization. In chapter one I develop a theoretical model that endogenously generates informal jobs due to a payroll tax, and in which domestic and foreign import tariffs affect the industry-level share of informal workers and the formal-informal wage gap. My model predicts that a decrease in import tariffs increases both the informality share and the formal-informal wage gap, whereas a decrease in foreign tariffs has the opposite effect. In chapter two I verify if these predictions are supported by data from the Brazilian trade liberalization episode (1989-2001), which contain information about workers' employment, demographic characteristics, and payroll tax compliance. To avoid endogeneity concerns I employ an instrumental variables technique. I find that a percentage point decrease in import tariffs leads to a 0.8 percentage point increase in the informality share and a 0.4 percentage point increase in the wage gap. A percentage point reduction in foreign tariffs implies a decrease of 0.35 percentage point in the informal share and a 0.17 percentage point decrease in the wage gap. In chapter three I investigate the inter-industry wage premium channel by focusing on two aspects ignored by the existing literature. The first is whether trade policy affects wage premium for tradable and non-tradable industries differently. The second aspect is if productivity determines both the wage premium and import tariffs, then its omission will generate inconsistent estimates of the effect of import tariffs. Using late 1980s data from the Colombian trade liberalization episode, I find that only the tradable and manufacturing industries wage premia are sensitive to changes in import tariffs. Furthermore, productivity is an important determinant of the wage premium and the import tariff (as an included instrument). Its omission generates a 100% larger estimated impact of trade liberalization impact on the wage premium.Item The Three Faces of Trade Liberalization: Unilateral, Preferential, and Multilateral(2006-05-30) KARACAOVALI, BAYBARS; Limão, Nuno; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)There is a growing number of studies that investigate the effect of trade liberalization on productivity and nearly all assume that trade policy is independently determined of productivity, hence it is exogenous. I show that this assumption is generally invalid both theoretically and empirically. In Chapter 1, I demonstrate that under a standard political economy model of trade protection, productivity directly influences tariffs. Moreover, this productivity-tariff relationship partly determines the extent of liberalization across sectors even in the presence of a large exogenous unilateral liberalization shock that affects all sectors. In Chapter 2, I examine total factor productivity (TFP) estimates obtained at the firm level for Colombia between 1983 and 1998 and find that more productive sectors receive more protection within this period. In estimating the effect of productivity on tariffs, I control for the endogeneity of the inverse import penetration to import demand elasticity ratio and productivity. Finally, I use a system of equations to illustrate that the positive impact of liberalization on productivity grows somewhat stronger when corrected for the endogeneity bias. In Chapter 3, which is joint with Nuno Limão, we analyze the effect of preferential trade agreements (PTAs) on multilateral trade liberalization (MTL). PTAs are characterized by liberalization with respect to only a few partners and thus can potentially retard multilateral trade liberalization (MTL). Despite this important concern, there is almost no systematic evidence as to whether PTAs actually affect MTL or not. We model the effect of PTAs on MTL and show that PTAs slow down MTL unless they involve a common external tariff and allow for internal transfers. Next, we use detailed data on product-level tariffs negotiated by the European Union (EU) in the last two multilateral trade rounds to structurally estimate our model. We confirm the main prediction-the EU's PTAs have clashed with its MTL-and find that the effect is quantitatively significant. Moreover, we also confirm several auxiliary predictions of the model and provide new evidence on the political economy determinants of MTL in the EU.Item Changes in the Wage Gap of Gender and Caste Groups in India(2006-04-24) Jacob, Marilyn; Sanders, Seth; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)We explore the changes in the wage gap of caste and gender groups in India. Traditional Hindu society divided people into social classes based on the caste system. The lowest of the castes have traditionally been economically disadvantaged. Women in India have typically been restricted to the household and their participation in the formal labor market has begun expanding only recently. We explore the changes that these two groups have experienced over the years using a nationally representative dataset. In the second chapter we decompose the wage gaps of these groups into explained and unexplained components based on the Blinder-Oaxaca (1973) decomposition technique. Our contribution to the literature here is the extension of the analysis of discrimination to a society with a clearly established social hierarchy. We find that the gross wage gap has reduced over this period, and the extent of the gap attributable to discrimination has decreased over time. We further decompose the wage gap into components attributable to wage differences and occupational differences based on Brown et al. (1980). We find that the wage discrimination component has decreased over time and the job discrimination component is statistically insignificant. In the third chapter we investigate whether there have been beneficial wage gains for women and lower castes because of increased competition following liberalization of trade in India. Based on Becker's model of taste-based employer discrimination, it is expected that as an economy becomes more competitive, employer discrimination should decline. The trade liberalization reforms that began in 1991 in India increased competition by lowering protection in certain manufacturing industries. Firms who could indulge a taste for discrimination when trade protection allowed supernormal profits may not have been able to continue to do so as competition eliminated such profits. Using individual-level data and tariff data from pre- and post-reform periods, we find that wage differences reduced for female workers relative to male workers in the more open manufacturing sector industries. However, there is no significant effect on the wage differential between low and high caste workers.Item Essays in International Economics(2004-08-09) Mukerji, Purba; Panagariya, Arvind; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation consists of two essays. The first essay investigates the impact of capital account convertibility on the volatility of economic growth. Previous work has concentrated on the impact of convertibility on mean growth and has found contradictory results. Existing theoretical work suggests that impact of convertibility on volatility could differ across economies depending on their level of financial development. I test this hypothesis using a system of equations that allow for simultaneous determination of three endogenous variables: volatility, mean growth and financial development. I also allow for spillover effects in economic growth and its volatility. I find that financially developed economies are better able to handle capital account convertibility in the sense that convertibility does not lead to excess fluctuations in those economies. However less financially developed economies suffer a higher level of fluctuations with an open capital account. These results are robust to alternative measures of financial development and to removal of the top and bottom 10% of my sample. I also find significant spillovers from growth of trade partners on the mean growth of the domestic economy. The second essay builds on Romer's (1994) idea that when there are fixed costs of entry into export markets, even low trade barriers can lead to the complete disappearance of some products and impose costs that are much larger than the conventional costs of protection. I incorporate Romer's insight into a fully specified general equilibrium model. In a two-country, differentiated goods model, assuming that firms are heterogeneous with respect to the costs of entry into the export market, I show that firms are divided into those that sell exclusively at home and those that also sell abroad. Larger firms export more and are also characterized by higher average productivity. The cost of protection is significantly higher when I allow products to disappear as a result of the tariff. My work is closely related to Melitz (2003) and Helpman, Melitz and Yeaple (2002) but differs in the mechanism underlying the results. Data from the Indian trade liberalization of the 1990s appears be in line with the results of the model.