As  would  be  predicted  by  new  heterogeneous  firm  models  of  international  trade,  Brazil’s trade  liberalization  in  the  early  1990s  was  associated  with  significant  firm-­‐level  entry  into exporting.  The  share  of  exporting  firms  increased  over  50%—from  only  8.5%  in  1990  to 12.9%  in  1994  before  leveling  off.

**Tariffs** In   our   analysis   of   Brazil’s   trade   policy,   we   concentrate   on   two   trade   protection measures:   the   final   goods   output   tariff   and   the   effective   rate   of   protection   (ERP).   The effective   rate   of   protection   allows   us   to   incorporate   changes   in   tariffs   placed   on   inputs   into   a firm’s   production   process.   Our   data   on   final   goods   tariffs   are   from   Muendler   (2003),   who reports   monthly   nominal   final   goods   output   tariffs   at   the _Nível   80_ Brazilian   industrial classification   level.   We   access   monthly   ERP   at   the _Nível   80_ industrial   classification   level from   Kume,   Piani,   and   Souza   (2003).<sup>15</sup> We   match   the   December   tariffs   from   1990   to   1998 with   our   annual   RAIS   worker   data   by   the   2-­‐digit   IBGE   subsector<sup>16</sup> to   identify   workers   and firms   in   industries   with   differential   rates   of   protection   and   liberalization   experiences.

Figure  2.1  displays  both  the  mean  and  median  values  of  the  effective  rate  of  protection  in the  manufacturing  sector  during  the  1990  to  1998  period.  The  early  1990s  experienced sharp  declines  in  the  effective  rate  of  protection.  Mean  rates  fell  from  approximately  60 percent  to  20  percent,  while  median  rates  fell  from  40  percent  to  20  percent  in  a  half-­‐ decade.  The  slight  aforementioned  protectionist  response  to  the  appreciation  of  the _real_ is also  evident.  Most  strongly  in  the  early  part  of  the  decade,  median  ERP  was  smaller  than average  ERP,  suggesting  that  the  distribution  of  the  effective  rate  of  protection  is  skewed  to the  right.  Over  time,  as  the  sectoral  variation  narrows,  the  mean  ERP  and  median  ERP converge.

This  substantial  cross-­‐industry  variation  in  both  levels  and  changes  in  the  ERP  is

> 15   Kume,   Piani,   and   Souza   (2003)   formally   measure   ERP   for   sector _k_ as   the   increase   in   the   value-­‐ added   due   to   the   structure   of   tariffs   relative   to   value-­‐added   at   free   trade   prices,   as   follows: _ERPk_ = τ _k_ − 1∑− ∑ _amka_ τ _mkk_ ,   where _amk_ =<sup>_amk_</sup> _d_ 1(+τ1+τ _m_ _<u>k</u>_ <u>)</u> is   the   input-­‐output   matrix   at   free-­‐trade international   prices,   final   goods   and   intermediate   inputs   tariffs,   respectively. _amkd_ is   the   input-­‐output   matrix   at   distorted   domestic   prices,   and τ _k_ and      are   the   τ _m_

> 16   We   follow   industry   concordances   available   at _http://econ.ucsd.edu/muendler/brazil_ to   concord   the _Nível   80_ classification   to   the   2-­‐digit   IBGE   subsector   classification   used   in   RAIS.   This   constitutes   the IBGE   subsectors   2   through   13.

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