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International trade and unemployment: Theory and cross-national evidence

  • Dutt, Pushan
  • Mitra, Devashish
  • Ranjan, Priya

We present a model of trade and search-induced unemployment, where trade results from Heckscher-Ohlin (H-O) and/or Ricardian comparative advantage. Using cross-country data on trade policy, unemployment, and various controls, and controlling for endogeneity and measurement-error problems, we find fairly strong and robust evidence for the Ricardian prediction that unemployment and trade openness are negatively related. This effect dominates the positive H-O effect of trade openness on unemployment for capital-abundant countries, which turns negative for labor-abundant countries. Using panel data, we find an unemployment-increasing short-run impact of trade liberalization, followed by an unemployment-reducing effect leading to the new steady state.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 78 (2009)
Issue (Month): 1 (June)
Pages: 32-44

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Handle: RePEc:eee:inecon:v:78:y:2009:i:1:p:32-44
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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