Trade openness effects on informality and the real exchange rate channel

ABSTRACT

The theoretical frameworks that explain the impact of trade openness on informal employment suggest an ambiguous effect. This has been verified in a few countries, based solely on microeconometric evidence. This study contributes to the literature by specifying a macroeconometric relationship for a panel of 17 Latin American countries.

KEYWORDS:

• Trade openness
• informal employment
• real exchange rate

JEL CLASSIFICATION:

• E26
• F16

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ The theoretical expression $\left(p_0-p_l\right)/p$ has an empirical counterpart: $\theta +{\tau }_i$.

Additional information

Funding

I am grateful for the support of the R4D project on Employment funded by the Swiss National Science Foundation and the Swiss Development Cooperation. I thank Omar Alburqueque-Chávez for the excellent research assistance