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International trade and unemployment: Theory and cross-national evidence

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  • Dutt, Pushan
  • Mitra, Devashish
  • Ranjan, Priya

Abstract

We present a model of trade and search-induced unemployment, where trade results from Heckscher-Ohlin (H-O) and/or Ricardian comparative advantage. Using cross-country data on trade policy, unemployment, and various controls, and controlling for endogeneity and measurement-error problems, we find fairly strong and robust evidence for the Ricardian prediction that unemployment and trade openness are negatively related. This effect dominates the positive H-O effect of trade openness on unemployment for capital-abundant countries, which turns negative for labor-abundant countries. Using panel data, we find an unemployment-increasing short-run impact of trade liberalization, followed by an unemployment-reducing effect leading to the new steady state.

Suggested Citation

  • Dutt, Pushan & Mitra, Devashish & Ranjan, Priya, 2009. "International trade and unemployment: Theory and cross-national evidence," Journal of International Economics, Elsevier, vol. 78(1), pages 32-44, June.
    • Handle: RePEc:eee:inecon:v:78:y:2009:i:1:p:32-44
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    More about this item

    Keywords

    Trade Search Unemployment Ricardian Heckscher-Ohlin;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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