The impact of trade liberalisation on the informal sector in Brazil

Abstract

We assess whether or not the trade liberalisation process in Brazil had any effect on both the reduction in the wage differential between registered and non-registered (roughly formal and informal) workers and the fall in the proportion of registered workers. We discuss the channels through which trade liberalisation could affect these two variables and put forward three empirical approaches to test the existence of any correlation between them. Our results suggest that the fall in the wage gap between registered and non-registered workers in the manufacturing sector was affected by trade-related variables, particularly, by the import penetration ratio. However, we do not find robust evidence that trade liberalisation had a substantial effect on the fall in the proportion of registered workers.