International Trade and Unemployment: Theory and Cross-National Evidence
AbstractIn this paper, we present two alternative models of trade and unemployment, in which unemployment is generated through a search mechanism. The basic framework of the first model is Ricardian in that the only factor of production is labor and trade is based on relative technological differences. The second model has a Heckscher-Ohlin (H-O) framework with two factors of production, namely labor and capital that are intersectorally mobile. Using cross-country data on various measures of trade policy, unemployment and a variety of controls, we find strong evidence for the Ricardian prediction that unemployment and trade openness are negatively related (protection and unemployment are positively related). We do not find any support for the H-O prediction that this relation between trade openness and unemployment changes from negative to positive as we move from labor-abundant to capital-abundant countries. Our results are robust to the inclusion of controls for labor market institutions and macroeconomic distortions. They hold for both ordinary least squares and instrumental-variables approaches, where the latter accounts for the endogeneity of trade policy to unemployment and possible measurement errors in trade policy variables.
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 University of California-Irvine, Department of Economics in its series Working Papers with number 070808.
Length: 32 pages
Date of creation: Dec 2007
Date of revision:
Unemployment; International trade; Cross-country data;
Other versions of this item:
- 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.
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
This paper has been announced in the following NEP Reports:
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.:
- Helpman, Elhanan & Itskhoki, Oleg, 2009.
"Labor Market Rigidities, Trade, and Unemployment,"
CEPR Discussion Papers
7502, C.E.P.R. Discussion Papers.
- Oleg Itskhoki & Elhanan Helpman, 2008. "Labor Market Rigidities, Trade and Unemployment," 2008 Meeting Papers 690, Society for Economic Dynamics.
- Elhanan Helpman & Oleg Itskhoki, 2007. "Labor Market Rigidities, Trade and Unemployment," NBER Working Papers 13365, National Bureau of Economic Research, Inc.
- Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
- Harrigan, James, 1993. "OECD imports and trade barriers in 1983," Journal of International Economics, Elsevier, vol. 35(1-2), pages 91-111, August.
- David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
- Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004.
"Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development,"
Journal of Economic Growth,
Springer, vol. 9(2), pages 131-165, 06.
- Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers.
- Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
- Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003.
"The Regulation of Labor,"
NBER Working Papers
9756, National Bureau of Economic Research, Inc.
- Wacziarg, Romain & Wallack, Jessica Seddon, 2004.
"Trade liberalization and intersectoral labor movements,"
Journal of International Economics,
Elsevier, vol. 64(2), pages 411-439, December.
- Wacziarg, Romain & Seddon, Jessica, 2000. "Trade Liberalization and Intersectoral Labor Movements," Research Papers 1652, Stanford University, Graduate School of Business.
- Carl Davidson & Steven J. Matusz, 2005.
"Trade and Turnover: Theory and Evidence,"
Review of International Economics,
Wiley Blackwell, vol. 13(5), pages 861-880, November.
- Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to Cross-National Evidence," NBER Working Papers 7081, National Bureau of Economic Research, Inc.
- Andrew K. Rose, 2002.
"Do We Really KNow that the WTO Increases Trade?,"
182002, Hong Kong Institute for Monetary Research.
- J Anderson & J.P. Neary, 1994.
"Measuring the Restrictiveness of Trade Policy,"
CEP Discussion Papers
dp0186, Centre for Economic Performance, LSE.
- 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).
- Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Journal of Economic Theory, Elsevier, vol. 146(1), pages 39-73, January.
- Donghoon Lee & Kenneth I. Wolpin, 2004.
"Intersectoral Labor Mobility and the Growth of the Service Sector,"
PIER Working Paper Archive
04-036, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Donghoon Lee & Kenneth I. Wolpin, 2006. "Intersectoral Labor Mobility and the Growth of the Service Sector," Econometrica, Econometric Society, vol. 74(1), pages 1-46, 01.
- Romain Wacziarg & Karen Horn Welch, 2008.
"Trade Liberalization and Growth: New Evidence,"
World Bank Economic Review,
World Bank Group, vol. 22(2), pages 187-231, June.
- Wacziarg, Romain & Welch, Karen Horn, 2003. "Trade Liberalization and Growth: New Evidence," Research Papers 1826, Stanford University, Graduate School of Business.
- Romain Wacziarg & Karen Horn Welch, 2003. "Trade Liberalization and Growth: New Evidence," NBER Working Papers 10152, National Bureau of Economic Research, Inc.
- Devashish Mitra & Priya Ranjan, 2007.
"Offshoring and Unemployment,"
NBER Working Papers
13149, National Bureau of Economic Research, Inc.
- Christopher Magee & Carl Davidson & Steven Matusz, 2005.
"Trade, Turnover, and Tithing,"
- Alesina, Alberto & Perotti, Roberto, 1996.
"Income distribution, political instability, and investment,"
European Economic Review,
Elsevier, vol. 40(6), pages 1203-1228, June.
- Alberto Alesina & Roberto Perotti, 1993. "Income Distribution, Political Instability, and Investment," NBER Working Papers 4486, National Bureau of Economic Research, Inc.
- Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
- Kee, Hiau Looi & Nicita, Alessandro & Olarreaga, Marcelo, 2006.
"Estimating Trade Restrictiveness Indices,"
CEPR Discussion Papers
5576, C.E.P.R. Discussion Papers.
- Mark P. Moore & Priya Ranjan, 2005. "Globalisation vs Skill-Biased Technological Change: Implications for Unemployment and Wage Inequality," Economic Journal, Royal Economic Society, vol. 115(503), pages 391-422, 04.
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Baltagi, Badi H. & Wu, Ping X., 1999. "Unequally Spaced Panel Data Regressions With Ar(1) Disturbances," Econometric Theory, Cambridge University Press, vol. 15(06), pages 814-823, December.
- Ramey, Garey & Ramey, Valerie A, 1995.
"Cross-Country Evidence on the Link between Volatility and Growth,"
American Economic Review,
American Economic Association, vol. 85(5), pages 1138-51, December.
- Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
- Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
- Limao, Nuno & Panagariya, Arvind, 2007. "Inequality and endogenous trade policy outcomes," Journal of International Economics, Elsevier, vol. 72(2), pages 292-309, July.
- Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
- Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral 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: (Jennifer dos Santos).
If references are entirely missing, you can add them using this form.