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International Trade and Unemployment: A Quantitative Framework

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  • Benedikt Heid
  • Mario Larch

Abstract

Quantifying the welfare effects of trade liberalization is a core issue in international trade. Existing frameworks assume perfect labor markets and therefore ignore the effects of aggregate employment changes for welfare. We develop a quantitative trade framework which explicitly models labor market frictions. To illustrate, we assess the effects of trade and labor market reforms for 28 OECD countries. Welfare effects of trade agreements are magnified when accounting for employment changes. While employment and welfare increase in most countries, some experience higher unemployment and lower welfare. Labor market reforms in one country have small positive spillover effects on trading partners.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-11/cesifo1_wp4013.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4013.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_4013

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Keywords: international trade; unemployment; trade costs; structural estimation; gravity equation;

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References

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  1. Anderson, James & Yotov, Yoto, 2012. "Terms of Trade and Global Efficiency Effects of Free Trade Agreements, 1990-2002," School of Economics Working Paper Series, LeBow College of Business, Drexel University 2012-3, LeBow College of Business, Drexel University.
  2. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2008. "Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity," IZA Discussion Papers 3363, Institute for the Study of Labor (IZA).
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  4. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  5. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2009. "Trade and Unemployment: What Do the Data Say?," IZA Discussion Papers 4184, Institute for the Study of Labor (IZA).
  6. Joao Santos Silva & Silvana Tenreyro, 2005. "The Log of Gravity," CEP Discussion Papers, Centre for Economic Performance, LSE dp0701, Centre for Economic Performance, LSE.
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  9. Fahr, René & Sunde, Uwe, 2009. "Did the Hartz Reforms Speed-Up the Matching Process? A Macro-Evaluation Using Empirical Matching Functions," Munich Reprints in Economics, University of Munich, Department of Economics 20482, University of Munich, Department of Economics.
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  11. Feenstra, Robert & Luck, Philip & Obstfeld, Maurice & Russ, Katheryn N., 2014. "In Search of the Armington Elasticity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9951, C.E.P.R. Discussion Papers.
  12. Hartmut Egger & Peter Egger & James R. Markusen, 2012. "International Welfare And Employment Linkages Arising From Minimum Wages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(3), pages 771-790, 08.
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  14. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, American Economic Association, vol. 102(1), pages 94-130, February.
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  16. René Fahr & Uwe Sunde, 2009. "Did the Hartz Reforms Speed-Up the Matching Process? A Macro-Evaluation Using Empirical Matching Functions," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 10, pages 284-316, 08.
  17. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics, Boston College Department of Economics 485, Boston College Department of Economics.
  18. Ana Cecília Fieler, 2011. "Nonhomotheticity and Bilateral Trade: Evidence and a Quantitative Explanation," Econometrica, Econometric Society, Econometric Society, vol. 79(4), pages 1069-1101, 07.
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  21. Bergstrand, Jeffrey H. & Egger, Peter & Larch, Mario, 2013. "Gravity Redux: Estimation of gravity-equation coefficients, elasticities of substitution, and general equilibrium comparative statics under asymmetric bilateral trade costs," Journal of International Economics, Elsevier, Elsevier, vol. 89(1), pages 110-121.
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Cited by:
  1. Gabriel Felbermayr & Mario Larch, 2014. "Transatlantic Free Trade: Questions and Answers from the Vantage Point of Trade Theory," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 14(4), pages 03-17, 01.
  2. Fritz Breuss, 2014. "TTIP and its Effects on Austria. A Critical Literature Survey," WIFO Working Papers, WIFO 468, WIFO.

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