Advanced Search
MyIDEAS: Login to save this article or follow this journal

International trade and macroeconomic dynamics with labor market frictions

Contents:

Author Info

  • Cacciatore, Matteo
Registered author(s):

    Abstract

    This paper studies how labor market frictions affect the consequences of trade integration in a two-country dynamic stochastic general equilibrium model with heterogeneous firms and endogenous producer entry. Two main results emerge. First, trade integration is beneficial for welfare by inducing higher productivity, but unemployment can temporarily rise during the transitional adjustment. Labor market rigidities reduce gains from trade, even though they can mitigate short-run employment losses. Second, consistent with the data, the model predicts that stronger trade linkages lead to increased business cycle synchronization. The strength of this effect, however, depends on the labor market characteristics of the integrating partners.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/pii/S0022199614000117
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Journal of International Economics.

    Volume (Year): 93 (2014)
    Issue (Month): 1 ()
    Pages: 17-30

    as in new window
    Handle: RePEc:eee:inecon:v:93:y:2014:i:1:p:17-30

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/inca/505552

    Related research

    Keywords: Trade integration; Search and matching; Firm entry; Heterogeneous firms; Business cycle comovement;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. David M. Arseneau & Sanjay K. Chugh, 2012. "Tax Smoothing in Frictional Labor Markets," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 120(5), pages 926 - 985.
    2. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1268-1290, September.
    3. Ghironi, Fabio & Melitz, Marc J, 2004. "International Trade and Macroeconomic Dynamics with Heteroegenous Firms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4595, C.E.P.R. Discussion Papers.
    4. Monique Ebell & Christian Haefke, 2009. "Product Market Deregulation and the U.S. Employment Miracle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 479-504, July.
    5. Cuñat, Alejandro & Melitz, Marc J, 2007. "Volatility, Labour Market Flexibility, and the Pattern of Comparative Advantage," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6297, C.E.P.R. Discussion Papers.
    6. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, Econometric Society, vol. 71(6), pages 1695-1725, November.
    7. Pushan Dutt & Devashish Mitra & Priya Ranjan, 2007. "International Trade and Unemployment: Theory and Cross-National Evidence," Working Papers 070808, University of California-Irvine, Department of Economics.
    8. John Haltiwanger & Adriana Kugler & Maurice Kugler & Alejandro Micco & Carmen Pages, 2004. "Effects of tariffs and real exchange rates on job reallocation: evidence from Latin America," Journal of Economic Policy Reform, Taylor & Francis Journals, Taylor & Francis Journals, vol. 7(4), pages 191-208.
    9. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 3-26, Summer.
    10. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series 2000, CESifo Group Munich.
    11. Daniel Trefler, 2006. "The Long and Short of the Canada-U.S. Free Trade Agreement," STICERD - Economics of Industry Papers 41, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    12. Elhanan Helpman & Oleg Itshoki & Stephen Redding, 2009. "Inequality and unemployment in a global economy," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 25501, London School of Economics and Political Science, LSE Library.
    13. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 108(449), pages 1009-25, July.
    14. Thomas Lubik & Michael Krause, 2003. "The (Ir)relevance of Real Wage Rigidity in the New Keynesian Model with Search Frictions," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 504, The Johns Hopkins University,Department of Economics.
    15. M. Ayhan Kose & Kei-Mu Yi, 2001. "International Trade and Business Cycles: Is Vertical Specialization the Missing Link?," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 371-375, May.
    16. Reuven Glick & Paul Bergin, 2003. "Endogenous Nontradability and Macroeconomic Implications," Computing in Economics and Finance 2003 106, Society for Computational Economics.
    17. Blanchard, J.O., 1989. "The Aggregate Matching Function," Working papers 538, Massachusetts Institute of Technology (MIT), Department of Economics.
    18. Pierre-Richard Agénor & Joshua Aizenman, 1995. "Trade Liberalization and Unemployment," IMF Working Papers 95/20, International Monetary Fund.
    19. Julian di Giovanni & Andrei A. Levchenko, 2010. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 95-124, April.
    20. Julián Messina & Giovanna Vallanti, 2007. "Job Flow Dynamics and Firing Restrictions: Evidence from Europe," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(521), pages 279-301, 06.
    21. César Calderón & Alberto E. Chong & Ernesto H. Stein, 2003. "Trade Intensity and Business Cycle Synchronization: Are Developing Countries any Different?," IDB Publications 6501, Inter-American Development Bank.
    22. Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics, Elsevier, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864 Elsevier.
    23. repec:spo:wpecon:info:hdl:2441/9244 is not listed on IDEAS
    24. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2011. "Trade and Labor Market Outcomes," NBER Working Papers 16662, National Bureau of Economic Research, Inc.
    25. Kose, M. Ayhan & Yi, Kei-Mu, 2006. "Can the standard international business cycle model explain the relation between trade and comovement?," Journal of International Economics, Elsevier, Elsevier, vol. 68(2), pages 267-295, March.
    26. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(2), pages 269-300, November.
    27. Andrei Zlate, 2010. "Offshore production and business cycle dynamics with heterogeneous firms," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 995, Board of Governors of the Federal Reserve System (U.S.).
    28. Jaume Ventura, 1998. "Comparative Advantage and the Cross-Section of Business Cycles," Working papers 98-9, Massachusetts Institute of Technology (MIT), Department of Economics.
    29. Krause, Michael & Lubik, Thomas A., 2007. "Does intra-firm bargaining matter for business cycle dynamics?," Discussion Paper Series 1: Economic Studies 2007,17, Deutsche Bundesbank, Research Centre.
    30. Helpman, Elhanan & Itskhoki, Oleg, 2009. "Labor Market Rigidities, Trade, and Unemployment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7502, C.E.P.R. Discussion Papers.
    31. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, American Economic Association, vol. 90(3), pages 482-498, June.
    32. Marianne Baxter & Michael A. Kouparitsas, 2004. "Determinants of Business Cycle Comovement: A Robust Analysis," NBER Working Papers 10725, National Bureau of Economic Research, Inc.
    33. José Antonio Rodríguez-López, 2011. "Prices and Exchange Rates: A Theory of Disconnect," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 1135-1177.
    34. Jean-Pierre LAFFARGUE, 1990. "Résolution d'un modèle macroéconomique avec anticipations rationnelles," Annales d'Economie et de Statistique, ENSAE, issue 17, pages 97-119.
    35. Romain Duval & Jørgen Elmeskov & Lukas Vogel, 2007. "Structural Policies and Economic Resilience to Shocks," OECD Economics Department Working Papers 567, OECD Publishing.
    36. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Munich Reprints in Economics, University of Munich, Department of Economics 20471, University of Munich, Department of Economics.
    37. Krause, Michael & López-Salido, J David & Lubik, Thomas, 2008. "Inflation Dynamics with Search Frictions: A Structural Econometric Analysis," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6810, C.E.P.R. Discussion Papers.
    38. Costas Arkolakis & Ananth Ramanarayanan, 2009. "Vertical Specialization and International Business Cycle Synchronization," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 111(4), pages 655-680, December.
    39. George Alessandria & Horag Choi, 2011. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Working Papers 11-19, Federal Reserve Bank of Philadelphia.
    40. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report, Federal Reserve Bank of Minneapolis 146, Federal Reserve Bank of Minneapolis.
    41. Turnovsky, Stephen J., 1985. "Domestic and foreign disturbances in an optimizing model of exchange-rate determination," Journal of International Money and Finance, Elsevier, Elsevier, vol. 4(1), pages 151-171, March.
    42. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
    43. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, Elsevier, vol. 48(2), pages 271-299, August.
    44. Mortensen, Dale T & Pissarides, Christopher, 2001. "Taxes, Subsidies and Equilibrium Labour Market Outcomes," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2989, C.E.P.R. Discussion Papers.
    45. Wacziarg, Romain & Wallack, Jessica Seddon, 2004. "Trade liberalization and intersectoral labor movements," Journal of International Economics, Elsevier, Elsevier, vol. 64(2), pages 411-439, December.
    46. Faia, Ester, 2009. "Ramsey monetary policy with labor market frictions," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(4), pages 570-581, May.
    47. Davis, Steven J & Haltiwanger, John & Schuh, Scott, 1996. " Small Business and Job Creation: Dissecting the Myth and Reassessing the Facts," Small Business Economics, Springer, Springer, vol. 8(4), pages 297-315, August.
    48. Gueorgui Kambourov, 2009. "Labour Market Regulations and the Sectoral Reallocation of Workers: The Case of Trade Reforms," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1321-1358.
    49. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2010. "Multiple-product firms and product switching," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 27861, London School of Economics and Political Science, LSE Library.
    50. Marianne Baxter, 1995. "International Trade and Business Cycles," NBER Working Papers 5025, National Bureau of Economic Research, Inc.
    51. Giancarlo Corsetti & Philippe Martin & Paolo A. Pesenti, 2005. "Productivity Spillovers, Terms of Trade and the "Home Market Effect"," NBER Working Papers 11165, National Bureau of Economic Research, Inc.
    52. Matteo Cacciatore & Giuseppe Fiori & Fabio Ghironi, 2013. "Market Deregulation and Optimal Monetary Policy in a Monetary Union," NBER Working Papers 19025, National Bureau of Economic Research, Inc.
    53. John Haltiwanger & Stefano Scarpetta & Helena Schweiger, 2008. "Assessing Job Flows Across Countries: The Role of Industry, Firm Size and Regulations," NBER Working Papers 13920, National Bureau of Economic Research, Inc.
    54. Paul Bergin & Reuven Glick, 2005. "Endogenous Tradability andMacroeconomic Implications," Working Papers, University of California, Davis, Department of Economics 513, University of California, Davis, Department of Economics.
    55. Bart Hobijn & Aysegül Sahin, 2007. "Job-finding and separation rates in the OECD," Staff Reports, Federal Reserve Bank of New York 298, Federal Reserve Bank of New York.
    56. Todd E. Clark & Eric van Wincoop, 1999. "Borders and business cycles," Staff Reports, Federal Reserve Bank of New York 91, Federal Reserve Bank of New York.
    57. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(500), pages 1-27, 01.
    58. Silvio Contessi, 2010. "How does multinational production change international comovement?," Working Papers, Federal Reserve Bank of St. Louis 2010-041, Federal Reserve Bank of St. Louis.
    59. Ariel Burstein & Christopher Johann Kurz & Linda Tesar, 2004. "Trade, Production Sharing and the International Transmission of Business Cycles," Working Papers, Research Seminar in International Economics, University of Michigan 522, Research Seminar in International Economics, University of Michigan.
    60. Ariel Burstein & Marc J. Melitz, 2011. "Trade Liberalization and Firm Dynamics," NBER Working Papers 16960, National Bureau of Economic Research, Inc.
    61. Levinsohn, James, 1999. "Employment responses to international liberalization in Chile," Journal of International Economics, Elsevier, Elsevier, vol. 47(2), pages 321-344, April.
    62. Antonella Trigari, 2009. "Equilibrium Unemployment, Job Flows, and Inflation Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(1), pages 1-33, 02.
    63. Balakrishnan, Ravi & Michelacci, Claudio, 2001. "Unemployment dynamics across OECD countries," European Economic Review, Elsevier, vol. 45(1), pages 135-165, January.
    64. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, Econometric Society, vol. 74(4), pages 1013-1062, 07.
    65. Dennis Novy, 2012. "Gravity Redux: Measuring International Trade Costs with Panel Data," CEP Discussion Papers dp1114, Centre for Economic Performance, LSE.
    66. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 112-32, March.
    67. Aart Kraay & Jaume Ventura, 2007. "Comparative Advantage and the Cross-section of Business Cycles," Journal of the European Economic Association, MIT Press, MIT Press, vol. 5(6), pages 1300-1333, December.
    68. Mark P. Moore & Priya Ranjan, 2005. "Globalisation vs Skill-Biased Technological Change: Implications for Unemployment and Wage Inequality," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(503), pages 391-422, 04.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:93:y:2014:i:1:p:17-30. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.