Intersectoral adjustment and unemployment in a two-country Ricardian model
AbstractIn a two-country Ricardian model, we study the dynamics of intersectoral reallocation of labour following upon a once and for ail move to free trade. The job creation/destruction process in both sectors is slow and this results in unemployment during the transition toward the long run free trade equilibrium. We identify different free trade regimes depending on whether or not the world relative price is between the two autarkic prices. In some regimes, one of the two countries overshoots its autarkic equilibrium i.e. temporarily specializes according to its comparative disadvantage. In that case, welfare increases in both countries. In other regimes, the adjustment process is monotonie in both countries but welfare increases in only one country. When the two countries have "very" different rates of job creation/destruction, the world price adjusts in such a way that the difference in adjustment speed between the two countries decreases.
Download InfoIf 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.
Bibliographic InfoPaper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 2004023.
Date of creation: 01 Jun 2004
Date of revision:
Comparative advantage; Adjustment process; Interdependent countries;
Find related papers by JEL classification:
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
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.:
- repec:wop:humbsf:1995-58 is not listed on IDEAS
- Feenstra, Robert C. & Lewis, Tracy R., 1994.
"Trade adjustment assistance and Pareto gains from trade,"
Journal of International Economics,
Elsevier, vol. 36(3-4), pages 201-222, May.
- Feenstra, R.C. & Lewis, T.R., 1989. "Trade Adjustment Assistance And Pareto Gains From Trade," Papers 343, California Davis - Institute of Governmental Affairs.
- Robert C. Feenstra & Tracy R. Lewis, 1991. "Trade Adjustment Assistance and Pareto Gains From Trade," NBER Working Papers 3845, National Bureau of Economic Research, Inc.
- Mayer, Wolfgang, 1974. "Short-Run and Long-Run Equilibrium for a Small Open Economy," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 955-67, Sept./Oct.
- Dehejia, Vivek, 1997.
"Will Gradualism Work When Shock Therapy Doesn't?,"
CEPR Discussion Papers
1552, C.E.P.R. Discussion Papers.
- Karp, Larry & Paul, Thierry, 1993.
"Phasing in and Phasing Out Protectionism with Costly Adjustment of Labour,"
CEPR Discussion Papers
856, C.E.P.R. Discussion Papers.
- Karp, Larry & Paul, Thierry, 1994. "Phasing In and Phasing Out Protectionism with Costly Adjustment of Labour," Economic Journal, Royal Economic Society, vol. 104(427), pages 1379-92, November.
- Karp, Larry S. & Paul, Thierry, 1993. "Phasing In And Phasing Out Protectionism With Costly Adjustments Of Labour," Working Papers 51112, International Agricultural Trade Research Consortium.
- Dixit, Avinash & Rob, Rafael, 1994. "Risk-sharing, adjustment, and trade," Journal of International Economics, Elsevier, vol. 36(3-4), pages 263-287, May.
- Karp, Larry S. & Theirry, Paul, 2002.
"Intersectoral Adjustment and Policy Intervention: the Importance of General Equilibrium Effects,"
CUDARE Working Paper Series
893R, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Larry Karp & Thierry Paul, 2005. "Intersectoral Adjustment and Policy Intervention: the Importance of General-Equilibrium Effects," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 330-355, 05.
- Karp, Larry & Paul, Thierry, 2002. "Intersectoral Adjustment and Policy Intervention: the Importance of General Equilibrium Effects," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7rk3z9w1, Department of Agricultural & Resource Economics, UC Berkeley.
- Baldwin, Richard & Venables, Anthony J, 1994. "International Migration, Capital Mobility and Transitional Dynamics," Economica, London School of Economics and Political Science, vol. 61(243), pages 285-300, August.
- K.C. Fung & Robert W. Staiger, 1994.
"Trade Liberalization and Trade Adjustment Assistance,"
NBER Working Papers
4847, National Bureau of Economic Research, Inc.
- K.C. Fung & Robert W. Staiger, 1994. "Trade Liberalization and Trade Adjustment Assistance," International Trade 9411002, EconWPA.
- J. Peter Neary, 1982. "Intersectoral Capital Mobility, Wage Stickiness, and the Case for Adjustment Assistance," NBER Chapters, in: Import Competition and Response, pages 39-72 National Bureau of Economic Research, Inc.
- Hamermesh, Daniel S & Pfann, Gerard Antonie, 1996.
"Adjustment Costs in Factor Demand,"
CEPR Discussion Papers
1371, C.E.P.R. Discussion Papers.
- Dixit, Avinash, 1989. "Intersectoral capital reallocation under price uncertainty," Journal of International Economics, Elsevier, vol. 26(3-4), pages 309-325, May.
- Karp, Larry & Paul, Thierry, 1998. "Labor adjustment and gradual reform: when is commitment important?," Journal of International Economics, Elsevier, vol. 46(2), pages 333-362, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sebastien SCHILLINGS).
If references are entirely missing, you can add them using this form.