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Trade shocks in Brazil: an investigation of effects on regional manufacturing wages

Filipe Lage de Sousa

[2006]

Abstract: Firms decide to locate their production where profits are maximized. As costs affect profits, tradeoff between two marginal costs - employees’ wages and transport cost – may be important for location decisions. Wages tend to be greater at markets and decrease as transport costs increase. Trade shocks might impact regional wage disparities by making foreign market, for example, relatively more attractive for firms than internal. This paper tests these two hypotheses by using Brazilian regional data. Results bear out that regions with higher transport costs show lower wages. Trade shocks, additionally, affect these regional wage disparities.