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Trade theorems with search unemployment

Author

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  • Yu Sheng
  • Xinpeng Xu

Abstract

We revisit the Heckscher-Ohlin-Samuelson model in the presence of labour market frictions à la Mortensen-Pissarides. Relaxing the assumption of the one-worker-one-firm matching rule, we show that the Stolper-Samuelson theorem and the Rybczynski theorem may not hold in specific circumstances. We also demonstrate that the Factor Price Equalization theorem is valid only for capital and unemployed labour across countries, but not for employed labour. In equilibrium, trade patterns are determined by countries' factor endowments and relative factor intensities in sectors (independent of factor intensities in production). Finally, our results suggest an additional explanation for the `missing trade' phenomenon.

Suggested Citation

  • Yu Sheng & Xinpeng Xu, 2010. "Trade theorems with search unemployment," Canadian Journal of Economics, Canadian Economics Association, vol. 43(3), pages 795-815, August.
  • Handle: RePEc:cje:issued:v:43:y:2010:i:3:p:795-815
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    Cited by:

    1. Xinpeng Xu & Yu Sheng, 2014. "Terms of Trade Shocks and Endogenous Search Unemployment: A Two-Sector Model with Non-Traded Goods," Pacific Economic Review, Wiley Blackwell, vol. 19(2), pages 201-215, May.

    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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