Trade, Poverty and Employment: The Social Consequences of Integration with China

This paper estimates the potential effects of a free trade agreement (FTA) between China and Mercosur on poverty, income distribution, welfare and employment. The case of Argentina, in particular, is investigated. To this end, partial equilibrium techniques are combined with micro econometric methodologies employing data from household surveys to examine the likely effects of an FTA with China on poverty and income distribution. We find that the FTA would result in a small reduction in poverty as well as an improvement in the income distribution. Highly disaggregated data at the industry level is used for the first time to estimate labor demand-output and wage elasticities in order to estimate the effects of an agreement with China on sectoral and aggregate employment rates. According to this, trade with the PRC did not have a significant effect on industrial employment, even in a period of swift trade liberalization like the nineties.