Discussion Paper

No. 2012-3 | January 11, 2012
A Case Study on Trade Liberalization: Argentina in the 1990s

Abstract

The link between trade and wages is embodied in the Stolper–Samuelson theorem and its generalizations. The Stolper–Samuelson logic is that trade affects relative factor rewards by changing relative prices. Since in Argentina non-skilled labor was neither as abundant a factor as land nor as scarce as capital it could not be expected to be the big winner in the opening-up process of the Argentine economy nor could it be expected to be a big loser. So, the huge amount of unemployment experienced by the Argentine economy in the 1990s as well as the widening wage gap between skilled and unskilled labor came as a complete surprise. This paper gives some reasons for this unexpected result. In Argentina, trade liberalization meant mainly import liberalization by lowering tariffs that protected labor-intensive industries like textiles. So, the short-run effect was massive destruction of jobs in non-skilled labor-intensive activities. The opening up of the economy significantly lowered the price of capital goods. This encouraged a drastic process of capital for labor substitution as well as promoting an increase in the demand for skilled labor. In those industries in which the import penetration increased the most, the wage inequality widened relatively more between unskilled and skilled workers. The reasons for the persistence of unemployment are discussed, the impact of the increasing unemploy¬ment and growing inequality in wage distribution on income distribution is analyzed, the alternatives of shock therapy vs. gradualism are discussed and finally some general conclusions are drawn from the analysis of the Argentine case.

Paper submitted to the special issue
Responding to the Labour Market Challenges of Globalisation
 

JEL Classification

F14 F16 J60

Cite As

Victor A. Beker (2012). A Case Study on Trade Liberalization: Argentina in the 1990s. Economics Discussion Papers, No 2012-3, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2012-3

Assessment



Comments and Questions


Anonymous - Referee Report 1
February 21, 2012 - 09:22

see attached file


Victor Beker - Response to Referee 1
February 23, 2012 - 21:13

Please see attached file


Victor Beker - New version
March 17, 2012 - 16:07

Please find attached a new version of the paper


Anonymous - Referee Report 2
March 26, 2012 - 09:33

see attached file


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