AN EMPIRICAL ANALYSIS OF THE DETERMINANTS OF EARNING AND EMPLOYMENT: DOES TRADE PROTECTION MATTER?

Abstract

Empirical studies that directly analyze the effect of trade policies on earnings and employment across countries is notably absent in the international trade literature. Most of the previous work focuses on the effects of trade policy on income distribution and economic growth. This paper differs from the earlier studies in that it directly analyzes the effect of trade policies on earnings in the manufacturing and agricultural sectors, and on the unemployment rate. A theoretical model that accounts for cross-sector labor migration and urban unemployment is developed. Reduced form equations derived from the model are analyzed empirically via cross-country regression analysis. Besides trade policy, machine use in the agricultural sector, per capita land holdings, capital investments in the manufacturing sector and the adult literacy rate are the other explanatory variables incorporated in the empirical analysis.