According to the smooth adjustment hypothesis (SAH), the labor-market adjustment costs in the form of unemployed resources will be lower if trade expansion is intra-industry rather than inter-industry in nature. This is what we attempt to test empirically using the Brulhart (1994) marginal intra-industry trade (MIIT) index and a dynamic panel data analysis. Considering the contemporaneous effect the results do not support the SAH. However, if we consider the one- year and-two years lags effects, the conclusion is different and it is sensitive to the size of the lag. Comparing with other empirical studies our results suggest that the validity of SAH depends on the variable choose as adjustment labor cost index, the time lag structure and the set of control variables. KEY Words: Adjustment costs; labor market; marginal intra-industry trade.
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Paper provided by Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon. in its series Working Papers with number
2009/17.
Length: Date of creation: Mar 2009 Date of revision: Handle: RePEc:ise:isegwp:wp172009
Contact details of provider: Postal: Department of Economics, School of Economics and Management (ISEG), Technical University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL Web page: http://www.iseg.utl.pt/departamentos/economia/
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Find related papers by JEL classification: C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data F16 - International Economics - - Trade - - - Trade and Labor Market Interactions J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
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