Employment dynamics in northern Uruguay border

Uruguay shares a long border with Brazil. There, inhabitants from both sides of the border shop in whichever country they find the cheapest prices. As a consequence of severe changes in the bilateral real exchange rate, the demand moves alternately from side to the other of the border, affecting the level of employment in two Uruguayan border provinces. The theoretical model outlined in this article intends to capture the main elements of the analyzed situation. The econometric estimates carried out validate the stated model and show that the labor markets on both sides of the border are not integrated enough to smooth the impact of demand movements.