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Market Entry Costs, Underemployment and International Trade

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  • Spiros Bougheas
  • Raymond Riezman

Abstract

We develop a small, open economy, two-sector model with heterogeneous agents and endogenous participation in a labor matching market. We analyze the implications of asymmetric market entry costs for the patterns of international trade and underemployment. Furthermore, we examine the welfare implications of trade liberalization and find that under certain conditions the patterns of trade are not optimal. We also examine the robustness of our results when we allow for complementarities in the production function and for alternative matching mechanisms.

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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 10/18.

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Handle: RePEc:not:notgep:10/18

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Keywords: Entry Costs; Patterns of Trade; Underemployment.;

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  1. Carl Davidson & Steven Matusz, 2005. "Trade Liberalization and Compensation," International Trade, EconWPA 0503008, EconWPA.
  2. Hartmut Egger & Udo Kreickemeier, 2008. "Fairness, Trade, and Inequality," CESifo Working Paper Series, CESifo Group Munich 2344, CESifo Group Munich.
  3. Jonathan Vogel & Arnaud Costinot, 2008. "Matching and Inequality in the World Economy," 2008 Meeting Papers, Society for Economic Dynamics 879, Society for Economic Dynamics.
  4. Felbermayr, Gabriel & Larch, Mario & Lechthaler, Wolfgang, 2009. "Unemployment in an interdependent world," FZID Discussion Papers, University of Hohenheim, Center for Research on Innovation and Services (FZID) 06-2009, University of Hohenheim, Center for Research on Innovation and Services (FZID).
  5. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2009. "Inequality and Unemployment in a Global Economy," CEP Discussion Papers, Centre for Economic Performance, LSE dp0940, Centre for Economic Performance, LSE.
  6. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Munich Reprints in Economics, University of Munich, Department of Economics 20471, University of Munich, Department of Economics.
  7. Spiros Bougheas & Raymond Riezman, 2005. "Trade and the Distribution of Human Capital," CESifo Working Paper Series, CESifo Group Munich 1475, CESifo Group Munich.
  8. Davidson, Carl & Matusz, Steven J. & Shevchenko, Andrei, 2008. "Globalization and firm level adjustment with imperfect labor markets," Journal of International Economics, Elsevier, Elsevier, vol. 75(2), pages 295-309, July.
  9. Brixiova, Zuzana & Li, Wenli & Yousef, Tarik, 2009. "Skill shortages and labor market outcomes in Central Europe," Economic Systems, Elsevier, Elsevier, vol. 33(1), pages 45-59, March.
  10. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, Elsevier, vol. 48(2), pages 271-299, August.
  11. Fan, Chengze Simon & Overland, Jody & Spagat, Michael, 1999. "Human Capital, Growth, and Inequality in Russia," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 618-643, December.
  12. Davidson, Carl & Matusz, Steven J. & Nelson, Douglas R., 2007. "Can compensation save free trade?," Journal of International Economics, Elsevier, Elsevier, vol. 71(1), pages 167-186, March.
  13. Kreickemeier, Udo & Nelson, Douglas, 2006. "Fair wages, unemployment and technological change in a global economy," Journal of International Economics, Elsevier, Elsevier, vol. 70(2), pages 451-469, December.
  14. Franziska Ohnsorge & Daniel Trefler, 2007. "Sorting It Out: International Trade with Heterogeneous Workers," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115(5), pages 868-892, October.
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