IDEAS home Printed from https://ideas.repec.org/a/bla/reviec/v12y2004i1p41-59.html

International Borrowing, Specialization, and Unemployment in a Small Open Economy

Author

Listed:
  • Patrick N. Osakwe
  • Shouyong Shi

Abstract

The authors show that an increase in international borrowing increases specialization and unemployment in a small open economy that is subject to terms‐of‐trade risks. The economy has a production advantage in the export sector. However, the size of the export sector is limited by the available funds. To insure workers against income fluctuations arising from terms‐of‐trade risks, firms in the export sector offer workers a stable wage rate with the possibility of unemployment. An increase in international borrowing increases specialization in the export sector, which leads to higher unemployment when the terms‐of‐trade shock is bad. A state‐contingent price subsidy can reduce unemployment without inefficiently reducing specialization. The results are robust to the introduction of risk‐averse firms.

Suggested Citation

  • Patrick N. Osakwe & Shouyong Shi, 2004. "International Borrowing, Specialization, and Unemployment in a Small Open Economy," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 41-59, February.
    • Handle: RePEc:bla:reviec:v:12:y:2004:i:1:p:41-59
    DOI: 10.1111/j.1467-9396.2004.00430.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-9396.2004.00430.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-9396.2004.00430.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert J. Barro, 1998. "Determinants of Economic Growth: A Cross-Country Empirical Study," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522543, December.
    2. Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(1), pages 37-50.
    3. Diwan, Ishac, 1990. "Linking trade and external debt strategies," Journal of International Economics, Elsevier, vol. 29(3-4), pages 293-310, November.
    4. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
    5. Steven J. Matusz, 1985. "The Heckscher-Ohlin-Samuelson Model with Implicit Contracts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1313-1329.
    6. Chang, P. H. Kevin, 1991. "Export diversification and international debt under terms-of-trade uncertainty : An intertemporal approach," Journal of Development Economics, Elsevier, vol. 36(2), pages 259-277, October.
    7. Cole, Harold L & Dow, James & English, William B, 1995. "Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 365-385, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert Lafrance & Patrick Osakwe & Pierre St-Amant, 1998. "Evaluating Alternative Measures of the Real Effective Exchange Rate," Staff Working Papers 98-20, Bank of Canada.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Raquel Fernandez, 1988. "Tariffs in an Economy with Incomplete Markets and Unemployment," NBER Working Papers 2705, National Bureau of Economic Research, Inc.
    2. Thorsten Posselt & Thomas Bürkle, 2006. "Franchising als Mischsystem: Die Bestimmung des optimalen Anteils der franchisenehmerbetriebenen Einheiten am Gesamtsystem," Schmalenbach Journal of Business Research, Springer, vol. 58(2), pages 150-168, March.
    3. Lloyd Ulman, 1992. "Why Should Human Resource Managers Pay High Wages?," British Journal of Industrial Relations, London School of Economics, vol. 30(2), pages 177-212, June.
    4. Neele Balke & Thibaut Lamadon, 2020. "Productivity Shocks, Long-Term Contracts and Earnings Dynamics," NBER Working Papers 28060, National Bureau of Economic Research, Inc.
    5. Cahuc, Pierre & Zylberberg, André, 2008. "Optimum income taxation and layoff taxes," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2003-2019, October.
    6. Schob, Ronnie & Wildasin, David E., 2007. "Economic integration and labor market institutions: Worker mobility, earnings risk, and contract structure," Regional Science and Urban Economics, Elsevier, vol. 37(2), pages 141-164, March.
    7. Robert Dur & Heiner Schmittdiel, 2019. "Paid to Quit," De Economist, Springer, vol. 167(4), pages 387-406, December.
    8. Marco Guerrazzi & Pier Giuseppe Giribone, 2022. "The dynamics of working hours and wages under implicit contracts," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1075-1094, October.
    9. Christian Calmès, 2005. "Self-Enforcing Labour Contracts and the Dynamics Puzzle," Staff Working Papers 05-1, Bank of Canada.
    10. Peter Cappelli, 1995. "Rethinking Employment," British Journal of Industrial Relations, London School of Economics, vol. 33(4), pages 563-602, December.
    11. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    12. Fernando Lefort & Klaus Schmidt-Hebbel, 2002. "Indexation, Inflation and Monetary Policy: An Overview," Central Banking, Analysis, and Economic Policies Book Series, in: Fernando Lefort & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Serie (ed.),Indexation, Inflation and MOnetary Policy, edition 1, volume 2, chapter 1, pages 001-018, Central Bank of Chile.
    13. Figura, Andrew, 2009. "Explaining cyclical movements in employment: Creative-destruction or changes in utilization?," Labour Economics, Elsevier, vol. 16(4), pages 429-439, August.
    14. Thomas Lemieux & W. Bentley MacLeod & Daniel Parent, 2012. "Contract Form, Wage Flexibility, and Employment," American Economic Review, American Economic Association, vol. 102(3), pages 526-531, May.
    15. John R. Graham & Hyunseob Kim & Si Li & Jiaping Qiu, 2023. "Employee Costs of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 78(4), pages 2087-2137, August.
    16. Pezone, Vincenzo, 2017. "Unemployment Risk and Payout Policies," MPRA Paper 83918, University Library of Munich, Germany.
    17. John C. Ham & Kevin T. Reilly, 2002. "Testing Intertemporal Substitution, Implicit Contracts, and Hours Restriction Models of the Labor Market Using Micro Data," American Economic Review, American Economic Association, vol. 92(4), pages 905-927, September.
    18. Marcel Chassot, 1982. "Zur Asymmetrie des Lohnverhaltens - Das Beispiel der schweizerischen Phillips-Kurve: 1959-1979," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 118(IV), pages 393-407, December.
    19. Sherwin Rosen, 1996. "The Equilibrium Approach to Labor Markets," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(99), pages 189-204.
    20. Gordon, Robert J, 1982. "Why U.S. Wage and Employment Behaviour Differs from That in Britain and Japan," Economic Journal, Royal Economic Society, vol. 92(365), pages 13-44, March.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:reviec:v:12:y:2004:i:1:p:41-59. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.