This paper analyses the evidence on the impact of tariff reductions on employment in developing countries. We carry out a systematic review of the existing empirical literature, and include both, ex post econometric evidence and ex ante Computable General Equilibrium (CGE) simulation studies. The synthesis of results suggests that the effects of tariff reductions on employment are country and trade policy specific.
When looking across higher quality econometric studies that control for the endogeneity of tariffs, only a couple of studies have statistically significant results, and these suggest that employment is likely to decrease slightly in the short run following trade liberalisation. This is consistent with the notion that there are winners and losers from trade policy reform.
These results are in contrast with the CGE findings, which by design incorporate projections of the medium-run economy-wide knock-on effects suggested by economic theory. The synthesis of CGE studies suggests non-negative effects of trade liberalisation on aggregate employment and moderate inter-sectoral labour reallocation effects.
Authors
