Trade Policy, Income Risk, and Welfare

This paper studies empirically the relationship between trade policy and individual income risk faced by workers, and uses the estimates of this empirical analysis to evaluate the welfare effect of trade reform. The analysis proceeds in three steps. First, longitudinal data on workers are used to es...

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Bibliographic Details
Main Authors:	Krebs, Tom, Krishna, Pravin, Maloney, William
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ADJUSTMENT COSTS AGGREGATE VOLATILITY AUTOCOVARIANCE BORDER TRADE BUSINESS CYCLE BUSINESS CYCLES CAPITAL MARKET CHANGES IN TRADE CLOSED ECONOMY DATA SET DATA SETS DEMAND ELASTICITY DEPENDENT VARIABLE DOWNWARD RIGIDITY OF WAGES ECONOMETRIC ANALYSIS ECONOMETRIC ISSUES ECONOMIC GROWTH ECONOMICS ECONOMISTS ELASTICITY EMPIRICAL ANALYSIS EMPIRICAL ESTIMATES EMPIRICAL EVIDENCE EMPIRICAL LITERATURE EMPIRICAL RESULTS EMPIRICAL STUDIES EMPIRICAL WORK EMPLOYMENT ENDOGENOUS DETERMINATION EQUILIBRIUM EXCHANGE RATE EXTENDED UNEMPLOYMENT FOREIGN COMPETITION FORMAL ANALYSIS FUTURE RESEARCH GDP GENERAL EQUILIBRIUM MODEL GROWTH RATE HIGH INFLATION HUMAN CAPITAL IDIOSYNCRATIC SHOCKS IMPACT OF TRADE IMPACT OF TRADE LIBERALIZATION IMPORT PENETRATION INCOME INCOME DATA INCOME INEQUALITY INCOME LEVELS INCOME SHOCKS INCOMPLETE MARKETS INDIVIDUAL INCOMES INFLATION INFLATION RATES INSURANCE INSURANCE MARKETS INTERNATIONAL PRODUCTION JOB CREATION LABOR DEMAND LABOR DEMAND FUNCTIONS LABOR FORCE LABOR MARKET LINEAR REGRESSION LONGITUDINAL DATA LOWERING TRADE BARRIERS MACROECONOMIC CONDITIONS MACROECONOMIC ENVIRONMENT MACROECONOMIC FACTORS MACROECONOMIC SHOCKS MACROECONOMIC VARIABLES MARKET LIBERALIZATION MEAN VALUE MEASUREMENT ERROR OPEN ECONOMIES OPENNESS PERMANENT INCOME POLICY CHANGE POLICY CHANGES POLICY REFORM POLICY REFORMS POLICY RESEARCH POLITICAL ECONOMY POSITIVE EFFECTS PRESENT VALUE PRODUCTIVITY RANDOM WALK REAL EXCHANGE RATE REAL WAGE REAL WAGES REDUCTION IN TARIFFS REGRESSION ANALYSIS RESOURCE ALLOCATION RISK AVERSION SAVINGS SELECTION BIAS SERIAL CORRELATION SERIAL DEPENDENCE SIGNIFICANT RELATIONSHIP TARIFF DATA TARIFF RATE TARIFF RATES TARIFF REDUCTION TARIFF REDUCTIONS TECHNOLOGICAL PROGRESS TRADE AGREEMENT TRADE BARRIERS TRADE LIBERALIZATION TRADE LIBERALIZATION INCREASES TRADE OPENNESS TRADE PATTERNS TRADE POLICY TRADE REFORM TRADE REFORMS TRANSITORY SHOCKS UNEMPLOYMENT WAGE CHANGES WAGE RATE WAGE RATES WAGES WELFARE EFFECTS WORKERS EXPERIENCE WORLD PRICES
Online Access:	http://documents.worldbank.org/curated/en/2005/06/6030533/trade-policy-income-risk-welfare http://hdl.handle.net/10986/8215

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Summary:	This paper studies empirically the relationship between trade policy and individual income risk faced by workers, and uses the estimates of this empirical analysis to evaluate the welfare effect of trade reform. The analysis proceeds in three steps. First, longitudinal data on workers are used to estimate time-varying individual income risk parameters in various manufacturing sectors. Second, the estimated income risk parameters and data on trade barriers are used to analyze the relationship between trade policy and income risk. Finally, a simple dynamic incomplete-market model is used to assess the corresponding welfare costs. In the implementation of this methodology using Mexican data, the paper finds that trade policy changes have a significant short run effect on income risk. Further, while the tariff level has an insignificant mean effect, it nevertheless changes the degree to which macroeconomic shocks affect income risk.

Trade Policy, Income Risk, and Welfare

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