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Trade-Induced Unemployment: How Much Do We Care?

  • Yoto V. Yotov

It is a common perception that a government, especially in the face of elections, is particularly sensitive to the presence of trade-induced unemployment. In this paper, I ask: how much weight does the incumbent politician actually attach to unemployment resulting from trade? To answer, I build a model that captures government's sympathy to trade-affected workers and allows me to decompose the channels through which trade-induced unemployment affects the level of sectoral protection chosen by a politically-driven incumbent official. I provide empirical evidence that the US government is very sensitive to the presence and the magnitude of trade-induced unemployment. Specifically, I estimate the weight that the office holder attaches to the welfare of trade-affected workers to be positive, significant, and four times larger than the weight on the welfare of those who are not affected by trade. Copyright � 2010 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 18 (2010)
Issue (Month): 5 (November)
Pages: 972-989

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Handle: RePEc:bla:reviec:v:18:y:2010:i:5:p:972-989
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  1. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  2. Matschke, Xenia N. & Sherlund, Shane M, 2003. "Do Labor Issues Matter In The Determination Of U.S. Trade Policy? An Empirical Reevaluation," Santa Cruz Department of Economics, Working Paper Series qt82k4x4f5, Department of Economics, UC Santa Cruz.
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  7. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
  8. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-87, December.
  9. Rigoberto A. Lopez & Xenia Matschke, 2005. "Food Protection for Sale," Working papers 2005-13, University of Connecticut, Department of Economics, revised Nov 2005.
  10. Imai, Susumu & Katayama, Hajime & Krishna, Kala, 2009. "Protection for sale or surge protection?," European Economic Review, Elsevier, vol. 53(6), pages 675-688, August.
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  12. Devashish Mitra, 1999. "Endogenous Lobby Formation and Endogenous Protection: A Long-Run Model of Trade Policy Determination," American Economic Review, American Economic Association, vol. 89(5), pages 1116-1134, December.
  13. Bradford, Scott, 2006. "Protection and unemployment," Journal of International Economics, Elsevier, vol. 69(2), pages 257-271, July.
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