Paper #1189

Title:

The impact of trade liberalization on skill upgrading. Evidence from Argentina

Author:

Paula Bustos

Date:

November 2005 (Revised: July 2011)

Abstract:

In this paper I study the effects of a regional free trade agreement on the demand for skill. I start by documenting a series of facts to shed light on the determinants of a steep increase in the relative demand of skilled labor in a panel of Argentinean industrial firms covering the trade liberalization period. First, this is not explained by labor reallocation across industries or firms but by skill upgrading within firms. Second, exporters upgrade skill faster than non exporters. Third, firms upgrading skill also upgrade technology. These findings are consistent with a model where a reduction in trading partner’s tariffs induces the most productive firms (exporters) to adopt skill-intensive production technologies. Indeed, I find that the reduction in Brazil’s tariffs induces the most productive Argentinean firms to upgrade skill, while the least productive ones downgrade. One third of the increase in the relative demand for skill can be attributed to the reduction in Brazil’s tariffs.

Area of Research:

Macroeconomics and International Economics

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