1. Distributive impacts of trade liberalization and
the case of Brazil
Sandra Polónia Rios
September 17, 2017

2. Content Trade liberalization debate: the rising voices of discontent
Brazil: a late comer in trade liberalization
Lessons from the 1990’s trade liberalization episode in Brazil

3. Trade liberalization debate: the expected benefits
“Openness to international trade fosters economic development and welfare gains”: a consensus among economists
“Benefits of trade opening are unevenly distributed across industrial sectors and segments of the population”: an acknowledgement among economists
“When a country liberalizes, the factor that is relatively scarce is going to lose earnings while the abundant factor will benefit”: a theorem
“Transition costs are small and gains are relevant enough to compensate for the loss that some may suffer”: a belief until recently
“The new possibility of combining high tech with low wages propelled the rapid industrialization of a handful of developing nations, the simultaneous deindustrialization of developed nations, and a commodity supercycle that is only now petering out. The result is today’s Great Convergence” Baldwin (2016)

4. Trade liberalization debate: the rising voices of discontent
The huge redistribution of production and trade, raised concerns about concentration of losses
The new globalization presents rich and developing nations alike with unprecedented policy challenges in their efforts to maintain reliable growth and social cohesion (Baldwin, 2016)
In rich nations, such as the U.S., deindustrialization had its adverse impacts concentrated locally and on individuals already at the bottom of the wage and education distribution
Studies have shown that technology more than trade should be the one to blame: automation of jobs had a much higher adverse effect on employment in US than trade with China and Mexico

5. Insufficient mitigation policies
But it is undeniable that international trade tends to make low-skilled workers in the U.S. worse off — not just temporarily, but on a sustained basis (Autor, 2016)
Mitigation policies such as Trade Adjustment Assistance (TAA), Unemployment Insurance, etc. were insufficient or inefficient
How to seize the benefits of trade for growth and productivity and mitigate the harms to those deeply affected?
Provide for efficient and well-funded social safety net programmes
Improve labor market institutions
Improve interregional labor mobility
Deal with local impacts

6. Brazil: Stylized historical background of economic phases
50’s to early 80’s: Industrialization based on IS strategies: High import tariffs + liberal FDI regime → diversified and domestically oriented industry
80’s: Transition to democracy + hyperinflation: policies focused on dealing with escalation of inflation and economic stagnation
90’s: macroeconomic stabilization + unilateral trade liberalization
00’s: “emergence years” = export boom + economic growth
10’s: “new hard times” = slow growth + fiscal deterioration + deep crisis in the industrial sector

7. Brazil: one episode of trade liberalization from 1957-2017
From 57 to 87: 30 years of unchanged tariff structure → penetration coefficient around 3% for the manufacturing sector
Trade liberalization of the 90’s:
Elimination of 42 special tax regimes applied to imports
Average tariff rates: from 57.5% in 87 to 32.1% in 89 to 13% in 93
Penetration coefficient around 18% for the manufacturing sector
The resulting tariff structure was based on tariff escalation, protecting the same industrial sectors favored by IS policies
Brazil remained apart from the PTAs wave of the 90’s and 00’s
Combination of policy tools and intensity changed over time, but Brazil remained relatively sheltered from the Great Convergence
The resilience of this paradigm is again being tested

8. Import tariffs in Brazil (1983 – 2016)

9. Trade openness – Imports of goods and services to the GDP (%) Selected countries – 1991 - 2014
Source World Development Indicators/ World Bank

10. Impacts of trade liberalization episode of the 90’s in Brazil
On economic growth
Economic impacts
Main mechanisms
Main references
Productivity growth
Increased competition in domestic market
Access to better inputs and equipment
Trade with technologically developed partners
Productivity increase within sectors
Cost-reduction innovations
Hay (1997)
Rossi and Ferreira (1999)
Ferreira and Rossi (2003)
Muendler (2004)
Gonzaga, Menezes-Filho and Terra (2006)
Hidalgo and Mata (2009)
Firpo and Pieri (2013, 2017)
Lisboa et al (2014)
Exports growth
Fall of intermediaries’ prices 
Johansson et al. (2014)

11. On employment , inequality and informality
Impacts of trade liberalization episode of the 90’s in Brazil
On employment , inequality and informality
Economic impacts
Main mechanisms
Main references
Wages
Exporting firms pay higher wages
Gonzaga et al (2006)
Helpman et al (2013)
Inequality
No significant changes in aggregate 
Trade liberalization first raises and later reduces wage inequality
Paes de Barros and Couseuil (2005)
Reallocation of jobs
Reallocation of production, with relevant geographical implications in the long run
Regions concentrating production with large tariffs reductions will suffer more
Menezes-Filho and Muendler (2007)
Urani (2006)
Dix-Carneiro (2014)
Dix-Carneiro and Kovak (2015)
Informality
Low impact
Depends on labor market institutions
Regional impacts
Goldberg and Pavcnik (2003),
Menezesand Muendler (2011), Bosch et al (2012)

12. Some conclusions from the Brazilian experience of the 90’s
Small inter-sectorial reallocation of production factors:
Maintenance of the same tariff escalation
Small labor mobility
Liberalization steadily increasing effects on regional earnings and labor markets
Regions facing higher tariffs will be harder affected
Imperfect interregional labor mobility and slow regional capital adjustment
Overall, positive impacts on poverty
Brazil has been sheltered from trade liberalization since the episode of the 90’s. Will the impacts of a new trade refor more than thirty years after be different?