Juan Munoz (University of Illinois at Urbana-Champaign)

“Entering the Major Leagues: The Effect of Import Competition from the United States on Workers and Firms in an Emerging Economy”

Abstract: Though abundant evidence shows that import competition from low-wage countries decreases manufacturing employment and wages of high-wage countries, less is known about the reverse: the impact of import competition from high-wage countries on emerging economies. This paper uses a natural experiment to examine the effects of import competition from the United States on workers and firms in Colombia. We exploit industry variation in import exposure and regional variation in import access in the wake of a free trade agreement that increased import competition in Colombia but left its exports unaffected. Using administrative employer-employee data to identify proxies for productivity and skills, we find that a 10 percent increase in import competition from the United States decreases employment in Colombia by 6.4 percent in affected industries and states. The impacts are driven largely by the exit and shrinking of less-productive firms. Less-skilled workers experience the greatest impacts, with effects on employment lasting for at least four years. Import competition induces workers to shift from affected to unaffected industries and states, and decreases the wage of workers employed in lessproductive
firms.