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Gravity with unemployment

Author

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  • Heid, Benedikt
  • Larch, Mario

Abstract

Quantifying the welfare effects of trade liberalization is a core issue in international trade. Existing frameworks assume perfect labor markets and therefore ignore the effects of aggregate employment changes for welfare. We develop a quantitative trade framework which explicitly models labor market frictions. To illustrate, we assess the effects of trade and labor market reforms for 28 OECD countries. Welfare effects of trade agreements are typically magnified when accounting for employment changes. While employment and welfare increase in most countries, some experience higher unemployment and lower welfare. Labor market reforms in one country have small positive spillover effects on trading partners.

Suggested Citation

  • Heid, Benedikt & Larch, Mario, 2016. "Gravity with unemployment," Journal of International Economics, Elsevier, vol. 101(C), pages 70-85.
  • Handle: RePEc:eee:inecon:v:101:y:2016:i:c:p:70-85
    DOI: 10.1016/j.jinteco.2016.03.008
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    Citations

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    Cited by:

    1. Heid, Benedikt & Larch, Mario & Yotov, Yoto, 2017. "Estimating the Effects of Non-discriminatory Trade Policies within Structural Gravity Models," School of Economics Working Paper Series 2017-10, LeBow College of Business, Drexel University.
    2. N. N., 2017. "WIFO-Monatsberichte, no 1/2017," WIFO Monatsberichte (monthly reports), WIFO, vol. 90(1), January.
    3. Larch, Mario & Yotov, Yoto, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," School of Economics Working Paper Series 2016-9, LeBow College of Business, Drexel University.
    4. repec:wfo:wstudy:59182 is not listed on IDEAS
    5. repec:elg:eechap:17028_2 is not listed on IDEAS
    6. Elisabeth Christen & Sandra Bilek-Steindl & Christian Glocker & Harald Oberhofer, 2017. "Austria 2025 – Austria's Competitiveness and Export Potentials in Selected Markets," WIFO Monatsberichte (monthly reports), WIFO, vol. 90(1), pages 83-95, January.
    7. Piermartini, Roberta & Yotov, Yoto, 2016. "Estimating Trade Policy Effects with Structural Gravity," School of Economics Working Paper Series 2016-10, LeBow College of Business, Drexel University.
    8. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters,in: Handbook of International Trade and Transportation, chapter 2, pages 15-78 Edward Elgar Publishing.
    9. repec:bla:growch:v:48:y:2017:i:3:p:390-408 is not listed on IDEAS
    10. Elisabeth Christen & Harald Oberhofer, 2016. "Exportpotentiale für die österreichische Wirtschaft: Eine Analyse relevanter Angebotsfaktoren," FIW Policy Brief series 032, FIW.
    11. Hayakawa, Kazunobu & Yoshimi, Taiyo, 2016. "Gravity with multiple tariff schemes," IDE Discussion Papers 614, Institute of Developing Economies, Japan External Trade Organization(JETRO).

    More about this item

    Keywords

    Welfare effects of trade; Quantitative trade theory; Unemployment; Trade costs; Structural estimation; Gravity equation;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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