Policies addressing the effects of labor market distortions on exports have not relied upon empirical evidence on the impact of labor costs. Using an econometric model this paper analyses the effect of labor costs on manufactured exports in 20 less-developed countries, concluding that labor costs significantly affect manufactured exports. The explanatory power of manufacturing capacity is significant in all the countries, and in the majority of them export elasticities with respect to export prices and to the price of imported intermediates are also significant. Pooling cross-section and time-series data, the effect of labor market distortions on manufactured exports is analyzed. The conclusion is that the effect of labor market distortions is significant and negative, supporting the idea that deregulating the labor market is essential to promote exports. © 1992.
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