Introduction In recent decades, there have been substantial advances in our understanding of the theoretical and empirical relationship between aggregate and distributional impacts of trade reforms on welfare (see chapter 2). These advances have shown how impacts can vary spatially (at the local or national level) and temporally (in the short and long term). Although the empirical literature analyzing the distributional impacts of trade has expanded, evidence of subnational variations in impacts remains concentrated in a few countries. Even so, these studies offer some key empirical lessons. The subnational effects of trade shocks can be large, can disproportionately affect some localities more than others depending on their exposure to such shocks, and may be negative or positive depending on the type of shock. In Brazil and India, import competition has triggered a large decline in wages and employment, and an increase in informality in import-competing regions relative to others. In China, India, and Vietnam, higher exports have reduced poverty, improved wages, and spurred a reallocation of labor from informal to formal jobs in localities more exposed to higher exports. Negative or positive subnational impacts on employment and wages persist over time in localities with greater exposure. Recent work finds wage and employment declines in regions more exposed to import competition to be more pronounced 20 years after the trade reforms in Brazil than they had been after 10 years (Dix-Carneiro and Kovak 2017). Similarly, districts in India that experienced greater exposure to a rise in exports tended to experience sustained increases in wages and reductions in informality. Not surprisingly, researchers find that these costs are in part driven by multiple barriers to mobility. Dix-Carneiro (2014) shows that, in Brazil, a large part of the switching cost is caused by the low transferability of human capital, a finding that others have substantiated. In some other countries, adjustment costs are driven by actual moving costs needed to find or start a new job. In Chile, China, and Mexico, labor market regulations and policies related to housing drive these costs higher and depress gains from trade. Informal employment can be an important channel of adjustment for workers in emerging economies, regardless of the type of trade shock they are exposed to. In Brazil, there has been a rise in informality in areas more exposed to tariff reductions in the medium term. In contrast, research on India and Vietnam highlights a pattern of workers shifting from informal to formal employment in areas more exposed to greater export orientation. Trade liberalization can typically favor the poor through lower prices, unlike income losses, which are more concentrated. While understudied, existing evidence 52
The Distributional Impacts of Trade
