Erhan Artuç () (Department of Economics, Koç University) Shubham Chaudhuri (East Asia and Pacific Poverty Reduction and Economic Management Department, The World Bank) John McLaren (University of Virginia)
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We simulate numerically a trade model with labor mobility costs added, modeled in such a way as to generate gross flows in excess of net flows. Adjustment to a trade shock can be slow with plausible parameter values. In our base case, the economy moves 95% of the distance to the new steady state in approximately eight years. Gross flows have a large effect on this rate of adjustment and on the normative effects of trade. Announcing and delaying the liberalization can build – or destroy – a constituency for free trade. We study the conditions under which these contrasting outcomes occur.
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Length: 34 pages Date of creation: Jan 2007 Date of revision: Handle: RePEc:koc:wpaper:0703
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