Trade and Factor Market Distortions: Effects on Employment in Brazil

Abstract

The impact of trade policies on labour absorption depends on how those policies affect the relative price of the final products or the relative price of the factors of production. It also depends on the factor market conditions with respect to competition. Since distortions in the factor markets can invalidate the predictions advanced by the HeckscherOhlin theorem and mitigate the effects of commercial policies on factor use, it is instructive to analyse these markets, giving special emphasis to distortions and their effects on relative factor prices and uses.In this paper, we shall describe the main distortions in the factor markets in Brazil and their possible effects on factor use in view of Brazil’s trade structure.

This paper is a summary of the findings of a study of Brazil undertaken for the National Bureau of Economic Research. See Anne O. Krueger, Chapter 26, this volume for details. It was financed mainly by the Fundação Getulio Vargas (FGV) and the Escola de Pos-Graduação em Economia (EPGE) under a special contract with the Brazil Ministry of Finance. Financial support was also obtained through a special grant by the United States Agency for International Development. We benefited from comments made by Anne O. Krueger, Hal Lary and Arnold C. Harberger. Needless to say, the paper does not represent the views of the sponsoring agencies, and all the remaining erros are our own responsibility.