Trade liberalization and informality in Argentina: exploring the adjustment mechanisms

Latin American Economic Review

Table 5 Average tariff and informality in the non-traded sector OLS and IV estimation

Dep. var.: residual informality rate	OLS			IV
Dep. var.: residual informality rate	(1)	(2)	(3)	(4)	(5)	(6)
Definition 1: share of small-size firms in industry
Log tariff	− 0.03 [0.011]^**	− 0.021 [0.010]^**	− 0.0215 [0.00918]^**	− 0.113 [0.036]^***	− 0.133 [0.063]^*	− 0.130 [0.0630]^*
Observations	32	32	32	32	32	32
\(R^2\)	0.98	0.98	0.982
First stage result
Average \(z^2\)				− 0.448 [0.117]^***	− 0.376 [0.129]^***	− 0.379 [0.131]^***
Observations				32	32	32
\(R^2\)				0.76	0.79	0.79
Definition 2: indicator of small-size industry
Log tariff	− 0.03 [0.011]^**	− 0.021 [0.010]^**	− 0.0215 [0.00918]^**	− 0.113 [0.036]^***	− 0.133 [0.063]^*	− 0.130 [0.0630]^*
Observations	32	32	32	32	32	32
\(R^2\)	0.98	0.98	0.982
First stage result
Average \(z^2\)				− 0.448 [0.117]^***	− 0.376 [0.129]^***	− 0.379 [0.131]^***
Observations				32	32	32
\(R^2\)				0.76	0.79	0.79
Control variables
Log relative supply	Yes	Yes	Yes	Yes	Yes	Yes
Educational level of the labor force	Yes	Yes	Yes	Yes	Yes	Yes
Fraction of small firms	No	Yes	Yes	No	Yes	Yes
Linear time trend	No	No	Yes	No	No	Yes

Time series regressions of residual informality on the national average tariff. Robust standard errors clustered at the year level in brackets. Average \(z^{2}\) is the average of the instrument based on exchange rates of main partners weighted by the participation of each industry in total employment
^*** Significant at 1%
^** Significant at 5%
^* Significant at 10%