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Porto, Guido G.

English

Research Papers in Economics

AJAE Appendix: Agro-Manufactured Export Prices,
Wages and Unemployment∗
Guido G. Porto†
Development Research Group
The World Bank
October 2007
∗Note: The material contained herein is supplementary to the article named in the title and published in
the American Journal of Agricultural Economics (AJAE).
†Correspondence: Guido Porto, MailStop MC3-303, The World Bank, 1818 H Street, Washington DC
20433. email: gporto@worldbank.org1 Introduction
In this Supplementary Appendix, I present the code used to perform the maximum likelihood
estimator of the main text (Section 2) and I set up a sensitivity analysis (Section 3).
2 Maximum Likelihood Code
The estimation of the maximum likelihood was carried out with the ml built-in stata
maximizer. Once the data is loaded, the code runs as follows
clear
program drop _all
set more off
*This is the code for the program called ‘reservation’
capture program drop reservation
program define reservation
args lnf theta1 theta2 theta3 theta4 theta5
*estado 1: employed P(yi*>0)P(oi*>0) *
*estado 2: unemployed P(yi*>0)P(oi*<0) *
*estado 3: inactive P(yi*<0) *
quietly replace ‘lnf’ = ln(normprob(‘theta3’)*(‘theta4’)
*normd((lwage-‘theta2’)*‘theta4’)
*normprob(((1-(‘theta5’)^2)^(-0.5))
*(‘theta1’+‘theta5’*(lwage-‘theta2’)*‘theta4’))) if estado==1
quietly replace ‘lnf’ = ln(1-normprob(‘theta1’)) if estado==3
quietly replace ‘lnf’ = ln(normprob(‘theta1’)*(1-normprob(‘theta3’))) if estado==2
quietly replace ‘lnf’ = ln(0.00000000001) if ‘lnf’==.
end
ml model lf reservation (‘vector z’) (‘vector x’) (‘vector m’) () (), cluster(clus)
ml check
ml search
ml maximize, difficult
1The notation vector z refers to the vector of explanatory variables in the labor
participation (net wage) equation, vector x refers to the vector of explanatory variables
in the market wage equation, and vector m refers to the explanatory variables in the job
oﬀer equation. See text and Table 2 for details.
3 Sensitivity Analysis
In this section, I provide a simple sensitivity analysis of the empirical model of section 2.
In the text, I allowed export prices to aﬀect wages across all sectors of the economy. This
assumption is consistent with a model where there are general equilibrium eﬀects through
labor mobility and spillovers. Labor mobility, for instance, forces wages to equalize across
sectors so that an expansion of the export sector that increases wages in that sector will
aﬀect wages in other sectors as well. Spillovers eﬀects will be present when the export sector
uses non-tradable goods as inputs. In these cases, an expansion of the export sector will
cause an expansion of the non-tradable sector and thus in the wages paid in those sectors. As
a sensitivity analysis, I estimate the model only allowing for wage eﬀects across the tradable
sectors.
Results are reported in Table A1, where I report the price elasticities of the three
equations of the model. Overall, the relevant elasticities are quite similar to those reported
in the Table 2 in the text. This is specially the case for the wage-price elasticities (column
1). It is interesting to see how the job oﬀer elasticities are larger in the tradable-sector
model (see column 3). These observations imply that, after a shock to export prices, wages
will respond in a similar fashion in the two models, but job oﬀers will be more sensitive in
the only-tradables model. In consequence, if anything, I expect larger impacts via quantity
adjustments in this model than in the all-sectors model of the text. This conclusion just
reinforces the need to incorporate labor market adjustment mechanisms into the empirical
evaluation of trade policies.
2Table A1
Estimated Coeﬃcients: Agro-Manufactured Export Prices
Wage Net Wage Job Oﬀer
Equation Equation Equation
Unskilled Labor 0.55 0.42 0.98
[0.098] [0.05] [0.14]
SemiSkilled Labor 0.52 0.28 1.13
[0.13] [0.067] [0.17]
Skilled Labor 0.39 0.45 0.99
[0.26] [0.16] [0.28]
Price Index for Imports yes yes yes
Regional Dummies yes yes yes
Note: Standard errors (cluster corrected) within brackets. The model
estimates a wage regression (ﬁrst column), a net wage equation (market
wage net of reservation wages, second column) and a job oﬀer equation (last
column). The sample is restricted to the tradable sector.
3

AJAE Appendix: Agro-Manufactured Export Prices, Wages and Unemployment

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