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Unemployment and Trade Liberalisation

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  • Paul Oslington

Abstract

In contrast to the focus of the public debate over trade liberalisation on job losses there is a widespread view among economists that unemployment and trade issues should be considered separately. This view cannot be justified theoretically, and ignores the growing number of general equilibrium trade models with unemployment. In a simple model with an exogenous wage floor, trade liberalisation can lead to either gains or losses depending on the production technology, severity of the factor market distortion, factor intensities of the industries and conditions in trading partners. Definite results can be derived about gains from liberalising trade with lower wage floors, about relative abundance of the unemployed factor dampening losses when trade is liberalised, and about gains when the good which uses the unemployed factor is exported. The theoretical models are then linked to the policy modelling literature, using the example of recent Australian controversies over liberalisation of trade in automobiles and textiles. It is argued that trade liberalisation would be better advanced by including endogenous employment in trade policy simulation exercises and by discussing employment effects rather than brushing them aside as temporary adjustment problems or regional difficulties. Copyright Blackwell Publishing Ltd 2005.

Suggested Citation

  • Paul Oslington, 2005. "Unemployment and Trade Liberalisation," The World Economy, Wiley Blackwell, vol. 28(8), pages 1139-1155, August.
  • Handle: RePEc:bla:worlde:v:28:y:2005:i:8:p:1139-1155
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    References listed on IDEAS

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    1. Gary Clyde Hufbauer & Ben Goodrich, 2003. "Steel Policy: The Good, the Bad, and the Ugly," Policy Briefs PB03-01, Peterson Institute for International Economics.
    2. Gary Clyde Hufbauer & Ben Goodrich, 2002. "Time for a Grand Bargain in Steel?," Policy Briefs PB02-01, Peterson Institute for International Economics.
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    Cited by:

    1. Heaton, Chris & Oslington, Paul, 2010. "Micro vs macro explanations of post-war US unemployment movements," Economics Letters, Elsevier, vol. 106(2), pages 87-91, February.
    2. Pamela Coke Hamilton & Yvonne Tsikata & Emmanuel Pinto Moreira, 2009. "Accelerating Trade and Integration in the Caribbean : Policy Options for Sustained Growth, Job Creation, and Poverty Reduction," World Bank Publications, The World Bank, number 2652.
    3. Frank Ackerman, 2006. "Assessing the Effects of Trade Liberalisation: A Critical Examination," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 3, July.
    4. Frank Ackerman, "undated". "05-01 "The Shrinking Gains from Trade: A Critical Assessment of Doha Round Projections"," GDAE Working Papers 05-01, GDAE, Tufts University.
    5. Bostan, Ionel & Grosu, Veronica, 2011. "General Equilibrium Dynamic Models and the Doha Round Impact on Underdeveloped Economies," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 159-174, March.

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