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International Trade and Domestic Distortions: Modelling the Transition Process

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  • Jean-Luc Gaffard

    (OFCE)

  • Francesco Saraceno

    (OFCE)

Abstract

According to the standard view, when full competition prevails in product, labour, and capital markets, positive or negative exter- nal trade shocks may be accommodated by the migration of jobs be- tween sectors; the negative impact on some households’ income of lower nominal wages will be more than o¤set by lower prices of im- ported nal goods. Unemployment, if any, will be temporary, unless labour market rigidities prevent the necessary adjustment. We ar- gue that trade shocks trigger a process of creative destruction that necessarily causes distortions in the structure of productive capacity and hence market disequilibria. Therefore, the structural change that follows trade shocks can no longer be analysed within an equilibrium framework. The transition following a shock may be characterized by increasing imbalances, and create scope for policy intervention. The model presented in this paper, which focuses on the time dimension of production and market imbalances, allows clarifying the debate

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Bibliographic Info

Paper provided by Sciences Po in its series Sciences Po publications with number n°2007-18.

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Date of creation: Jul 2007
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Handle: RePEc:spo:wpmain:info:hdl:2441/1261

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Related research

Keywords: globalization; trade; financial constraints; creative destruction; wage flexibilit; time to build; Firm migration; mondialisation; commerce; contraintes financières;

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References

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  1. Francesco Saraceno, 2004. "Wage Regimes, Accumulation and Finance Constraints : Keynesian Unemployment Revisited," Sciences Po publications 2004-01, Sciences Po.
  2. Mario Amendola & Jean-Luc Gaffard & Francesco Saraceno, 2004. "Wage Flexibility and Unemployment: The Keynesian Perspective Revisited," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(5), pages 654-674, November.
  3. Paul A. Samuelson, 2004. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 18(3), pages 135-146, Summer.
  4. Paul Krugman, 1996. "Domestic Distortions and the Deindustrialization Hypothesis," NBER Working Papers 5473, National Bureau of Economic Research, Inc.
  5. Amendola, Mario & Gaffard, Jean-Luc, 1998. "Out of Equilibrium," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198293804, October.
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Cited by:
  1. Jean-Luc Gaffard & Francesco Saraceno, 2008. "Tariffs, trade and unemployment in a disequilibrium model: issues and policies," Journal of Evolutionary Economics, Springer, Springer, vol. 18(2), pages 219-232, April.

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