Green Transition Through Trade: Brazil’s Two-Decade Labor Market Transformation

A new research paper by economists from the World Bank’s Poverty and Equity Global Practice and the International Finance Corporation (IFC) delivers fresh insight into how Brazil’s export expansion between 2000 and 2020 shaped labor market dynamics and interacted with environmental sustainability. Authors Carlos Góes, Otavio Conceição, Gabriel Lara Ibarra, and Gladys Lopez-Acevedo combined customs, census, and administrative data to examine the ripple effects of foreign demand shocks on employment across different regions and sectors. With an innovative classification system for environmental risk and sustainability, the paper explores not just who wins and loses from trade, but how those gains and losses evolve and impact Brazil’s journey toward greener growth.

Trade Boom Sparks Formal Job Growth Across Brazil

Brazil’s exports, fueled by strong demand for agriculture, oil, and mining, tripled in real terms between 2000 and 2020. This surge was not uniform; some municipalities experienced intense export booms, while others remained largely insulated. The paper finds that more trade-exposed municipalities saw faster growth in formal employment. Initial job elasticities were around 0.25, peaking at 0.4 after three years and remaining positive even a decade later. This points to a long and persistent labor market adjustment process. Wages also rose in affected regions, but at a slower pace, with average earnings increasing significantly only several years after the shock. These patterns indicate that employment responded more immediately, while wage adjustments followed more gradually, likely due to short-term rigidities and contracting norms in the Brazilian labor market.

The authors also highlight strong effects for skilled labor. Formal employment for college-educated workers showed more persistent gains, with long-term elasticities surpassing 0.5, while those without higher education leveled off closer to 0.3. This suggests that Brazil’s export boom disproportionately favored skilled workers, deepening existing divides in job quality and income security.

Informal Labor Shrinks as Exports Rise

While trade liberalization often raises concerns about job loss, the Brazilian case reveals a different dynamic. As export demand surged, informal employment, long a buffer for Brazil’s underemployed workforce, actually declined in trade-exposed regions. Using data from the 2000 and 2010 national censuses, the researchers show that informal labor shrank where exports rose. The decline was not trivial: elasticities for informal jobs were negative and statistically significant, particularly in sectors like agriculture and manufacturing.

This suggests a formalization effect: exporting firms, which tend to be larger and more productive, prefer hiring formally. As they expand, they pull workers from the informal economy into better-paying, regulated jobs. This effect is crucial for Brazil, where informality still accounted for over 60 percent of employment as recently as 2023. Reducing informality has major implications for tax collection, labor rights, and social protections.

"Dirty" Sectors Grow Fast, but Green Jobs Last Longer

A central focus of the paper is how export-led growth affects environmentally sensitive industries. Using a detailed taxonomy from FEBRABAN (Brazilian Federation of Banks) and the European Union’s sustainability framework, the authors classify economic activities as either environmentally risky or sustainable. Risky sectors, those requiring environmental permits, include mining, chemical manufacturing, fuel distribution, and heavy industry. Sustainable sectors involve renewable energy, water management, ecological R&D, and sustainable agriculture.

In the short run, export growth disproportionately benefited environmentally risky sectors, with elasticities as high as 0.4 in the first year. This aligns with the perception that Brazil’s export growth, particularly in commodities, initially supports “dirtier” industries. But over time, these effects faded. In contrast, employment in environmentally sustainable sectors responded more slowly but built up persistently, reaching peak elasticities of 0.5 a decade after the trade shock. These sectors ultimately outpaced the risky ones in terms of long-term job creation.

Importantly, formal environmentally sustainable employment showed significant positive effects, while informal sustainable employment remained flat, suggesting that green jobs were more likely to be formalized. This pattern challenges the common view that economic growth and environmental responsibility are inherently at odds. In fact, the study finds that a well-managed export strategy can stimulate greener sectors over time.

Gender and Regional Impacts Reveal Further Complexity

The study also uncovers gendered dimensions to export-driven employment. In the short term, formal job growth for both men and women responded similarly to foreign demand. But in the medium term, male employment elasticities climbed to 0.4, while female elasticities stabilized closer to 0.3. Interestingly, wage gains were stronger for women, suggesting that even if job quantity increased more for men, women may have benefited more in terms of earnings quality.

Geographically, traditional industrial hubs in Brazil’s Southeast initially reaped the most export gains. But by 2010, newer exporting centers had emerged in the Midwest and parts of the Northeast. Despite this broader geographic spread, longstanding inequalities in employment and income persist, especially in Brazil’s North and Northeast.

A Blueprint for Inclusive, Sustainable Trade Policy

By leveraging an innovative shift-share design and robust datasets, the researchers paint a detailed picture of how trade shocks impact both people and the planet. Their findings suggest that export booms in developing economies, such as Brazil, can lead to significant and sustained improvements in formal employment, wage growth, and even environmental performance, if managed wisely.

While sectors with high environmental risk initially dominate the job surge, their influence fades, and green jobs increasingly take the lead. Similarly, informal labor, long a hallmark of Brazil’s workforce, gives way to more secure employment as firms grow through trade. These outcomes underscore the importance of policies that not only support export competitiveness but also invest in green infrastructure, formalization incentives, and education to ensure equitable access to high-quality employment.

For Brazil and other developing economies, the message is clear: trade does not have to be a zero-sum game. With the right institutions and targeted interventions, countries can convert global demand into both inclusive prosperity and environmental progress.