How do minimum wages affect earnings inequality in countries with large informal sectors? We provide reduced-form evidence that the 2000s minimum wage hike in Brazil raised overall inequality by increasing inequality within the informal sector. We develop a model where heterogeneous firms select into informality to investigate when and how raising the minimum wage can increase inequality. We calibrate the model to Brazil and find that, by generating substantial informality, the increase in the minimum wage raised overall inequality by 4.1%. These results highlight how movements into and out of the informal sector modulate the effects of formal labor legislation.

We study social security reforms in economies characterized by segmented labor markets and pension systems. We develop a general equilibrium life-cycle model with heterogeneous agents, endogenous retirement, and sectoral choice. In the model, individuals choose to work in the public sector, the private formal sector, or the informal sector, taking into consideration differences in compensation structures, pension eligibility rules, and benefit formulas across sectors. The model is calibrated to Brazil, a country characterized by high informality, generous public pensions, and rapid demographic transition. We evaluate reforms such as unifying pension systems and increasing the minimum retirement age. These policies reduce the projected social security deficit by nearly 40%, increase output, stimulate capital accumulation, and generate average welfare gains, despite redistributive effects across age groups, sectors, and along the transition path. Sectoral reallocation, particularly the shift out of public employment and into informal work, plays a key role in shaping the reforms’ impact. Ignoring these margins can lead to a significant underestimation of the fiscal and macroeconomic effects of pension reforms.

Despite progress in reducing policy-induced trade barriers, Latin America’s trade openness has barely increased. We use disaggregated trade data to find considerable empirical evidence of under-trading, albeit with substantial heterogeneity across sub-regions and products. Poor transport infrastructure and customs inefficiencies are key factors explaining under-trading in manufacturing in most sub-regions in Latin America and the Caribbean (LAC), while other constraints, such as the quality of factors of production or governance, appear to affect specific countries in the region. Leveraging recent advances in the structural gravity literature, we estimate trade elasticities at different horizons and show how long-run elasticities in LAC significantly diverge from peers, in part due to the region’s relatively poor infrastructure. Counterfactual policy experiments suggest that closing half of the infrastructure gap between LAC and advanced economies could lift exports by up to 30 percent and yield significant GDP gains.

We study the gains from trade stemming from labor reallocation within the non-traded sector, using Brazil’s import liberalization as a quasi-natural experiment. Larger non-traded producers self-select into importing and expand relative to smaller producers as they incorporate foreign inputs. We develop a parsimonious model of heterogeneous producers consistent with the empirical findings, and show that this reallocation is welfare-enhancing but disappears when all non-traded producers make the same importing decision. The quantitative welfare effect of this margin is 0.02% for the average local labor market, reaching up to 0.2% for the largest regions in Brazil.

We study how industrial policies (IPs) shape firm performance, showing effects vary by instrument, firm and industry characteristics, value chain position, and time horizon. IPs reducing trade barriers are linked to medium-term improvements in performance. Subsidies discriminating against foreign interests yield short-term gains in value added (VA), productivity, and payroll, which fade or turn negative in the medium term. Export incentives lead to short-term declines in firm performance followed by medium-term gains. Effects are stronger for young and financially constrained firms than for older and less constrained ones. Industry distortions also matter---IPs are associated with stronger short-term improvements in VA, capital, and payroll when distortions are high. Finally, we find cross-sectoral spillovers: protective IPs targeting upstream sectors improve outcomes in downstream firms, while those targeting downstream sectors weaken upstream performance. By contrast, spillovers from trade-liberalizing policies are consistently positive and larger in magnitude, regardless of value chain position.

Industrial policies (IPs) are on the rise. The most common motive for pursuing IPs is to boost strategic competitiveness of the targeted products. Leveraging a novel database of industrial policies and using the local projection difference-in-differences approach, this paper examines the dynamic relationship between IPs and trade competitiveness. Our results point to a nuanced picture. On average, products targeted by IPs experience a larger  increase in competitiveness than non-targeted ones. However, there is substantial heterogeneity across different types of product and policy instruments. The average effect is driven by initially competitive products. Turning to policy instruments, domestic subsidies are associated with short-term improvements in trade competitiveness, whereas export incentives are linked to medium-term improvements in competitiveness. Finally, we focus on three widely discussed value chains-solar photo-voltaic, wind turbines, and electric vehicles-and present suggestive evidence that IPs can have spillover effects on non-targeted products through value chain linkages. Our findings for these three value chains suggest that IPs targeting upstream products are associated with larger improvements in the RCA of products using these upstream products relative to IPs targeting products at the same value chain stage.

Crime shocks are frequent and disruptive, often heightening public concerns about violence and personal security. Yet little is known about their potential economic legacy. This paper studies how historical exposure to crime shapes current perceptions of crime, and how  these perceptions in turn shape the economic impact of new crime shocks. Using cross-country survey data matched with historical crime records, we find that individuals historically exposed to high-crime years are more likely to prioritize fighting crime over other societal goals, such as maintaining a stable economy. This historical link is particularly strong among less-educated working parents and in advanced economies. Policies that strengthen fiscal positions and enhance the government’s capacity to respond to crime shocks help mitigate the persistence of these effects. At the aggregate level, countries where crime concerns are higher experience larger GDP declines in the aftermath of high-crime years, driven mainly by lower consumption, capital accumulation, and productivity, rather than changes in employment.