such barriers protect incumbent firms and prevent the entry of newcomers. Regulatory barriers to competition at the local level, often linked to powerful vested interests, tend to be dispersed across sectors and jurisdictions. Their negative impact depends on how they are applied and the market characteristics that are affected. ■■
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Limited access to finance. Credit to the private sector and deposits remain low, not just when compared to peers at the same income level but also within Latin America. Just one-third of small and medium enterprises have access to loans, and only 12 percent of microenterprises receive finance. Moreover, just 32 percent of small and medium enterprises need to invest but cannot because of financial constraints. Policy-driven distortions that increase the size of the informal sector. Because social security in Mexico is primarily financed through wage-based contributions, it acts as a tax on salaried employment. This incentivizes firms to move toward nonsalaried contracts, and the illegal evasion of social security, which has n egative consequences on productivity and growth. Settling labor disputes based on formal employment contracts is also a long and expensive process.
Bangladesh: How a Shock in Textiles and Apparel Spreads through Local Communities and across the Economy In the 1990s, Bangladesh took major steps to liberalize international trade. These included (a) cutting the maximum import duty from 350 percent in 1993 to 25 percent in 2005, (b) reducing the number of tariff bands from 15 in 1993 to 4 in 2016, and (c) lowering the unweighted average tariff rate from 70.0 percent in 1992 to 12.3 percent in 2008. Together with other measures aimed at reducing the cost of imported inputs and spurring exports, Bangladesh’s liberalization reforms opened the economy to the world. Exports shot up by 2,000 percent between 1990 and 2016, the highest increase in the region, and imports (primarily industrial raw material and capital machinery) rose from close to US$4 million to slightly over US$40 million. Most of these exports were destined for two markets: Europe (59 percent) and the United States (23 percent). A key question at the center of the current debate about the effects of globalization on welfare is whether the gains from trade remain localized or if they spread through the economy. The study “Short and Long-Run Labor Market Effects of Developing Country Exports: Evidence from Bangladesh” by Robertson et al. (2020) is part of a new body of work that focuses on the export-related impacts of trade reforms in developing countries, rather than the impact on import-competing industries, especially at the local level. Bangladesh is a good example for a number of reasons. Lessons from Recent Cases of Trade Reforms in Developing Countries 57
