IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

International trade and macroeconomic dynamics with labor market frictions

  • Cacciatore, Matteo

This paper studies how labor market frictions affect the consequences of trade integration in a two-country dynamic stochastic general equilibrium model with heterogeneous firms and endogenous producer entry. Two main results emerge. First, trade integration is beneficial for welfare by inducing higher productivity, but unemployment can temporarily rise during the transitional adjustment. Labor market rigidities reduce gains from trade, even though they can mitigate short-run employment losses. Second, consistent with the data, the model predicts that stronger trade linkages lead to increased business cycle synchronization. The strength of this effect, however, depends on the labor market characteristics of the integrating partners.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

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

Volume (Year): 93 (2014)
Issue (Month): 1 ()
Pages: 17-30

in new window

Handle: RePEc:eee:inecon:v:93:y:2014:i:1:p:17-30
Contact details of provider: Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Ramey, Garey & Fujita, Shigeru, 2006. "Job Matching and Propagation," University of California at San Diego, Economics Working Paper Series qt53s671h7, Department of Economics, UC San Diego.
  2. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  3. Romain Duval & Jørgen Elmeskov & Lukas Vogel, 2007. "Structural Policies and Economic Resilience to Shocks," OECD Economics Department Working Papers 567, OECD Publishing.
  4. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2008. "Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity," IZA Discussion Papers 3363, Institute for the Study of Labor (IZA).
  5. Dennis Novy, 2013. "Gravity redux: measuring international trade costs with panel data," LSE Research Online Documents on Economics 59308, London School of Economics and Political Science, LSE Library.
  6. Dale T Mortensen & Christopher Pissarides, 2001. "Taxes, subsidies and equilibrium labor market outcomes," LSE Research Online Documents on Economics 2075, London School of Economics and Political Science, LSE Library.
  7. Trigari, Antonella, 2004. "Equilibrium unemployment, job flows and inflation dynamics," Working Paper Series 0304, European Central Bank.
  8. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
  9. Turnovsky, Stephen J., 1985. "Domestic and foreign disturbances in an optimizing model of exchange-rate determination," Journal of International Money and Finance, Elsevier, vol. 4(1), pages 151-171, March.
  10. Alessandria, George & Choi, Horag, 2014. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Journal of International Economics, Elsevier, vol. 94(2), pages 207-223.
  11. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01.
  12. Krause, Michael & Lubik, Thomas A., 2007. "Does intra-firm bargaining matter for business cycle dynamics?," Discussion Paper Series 1: Economic Studies 2007,17, Deutsche Bundesbank, Research Centre.
  13. Jose Antonio Rodriguez Lopez, 2008. "Prices and Exchange Rates: A Theory of Disconnect," Working Papers 080902, University of California-Irvine, Department of Economics, revised Sep 2010.
  14. Ananth Ramanarayanan & Costas Arkolakis, 2009. "Vertical Specialization and International Business Cycle Synchronization," 2009 Meeting Papers 780, Society for Economic Dynamics.
  15. Cuñat, Alejandro & Melitz, Marc J, 2007. "Volatility, Labour Market Flexibility, and the Pattern of Comparative Advantage," CEPR Discussion Papers 6297, C.E.P.R. Discussion Papers.
  16. Julian di Giovanni & Andrei A. Levchenko, 2010. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 95-124, April.
  17. Todd E. Clark & Eric Van Wincoop, 1999. "Borders and business cycles," Research Working Paper 99-07, Federal Reserve Bank of Kansas City.
  18. Baxter, M., 1994. "International Trade and Business Cycles," RCER Working Papers 390, University of Rochester - Center for Economic Research (RCER).
  19. Linda Tesar & Ariel Burstein & Chris Kurz, 2005. "Trade, Production Sharing and the International Transmission of Business Cycles," 2005 Meeting Papers 304, Society for Economic Dynamics.
  20. Sanjay K. Chugh & David M. Arseneau, 2009. "Tax Smoothing in Frictional Labor Markets," 2009 Meeting Papers 202, Society for Economic Dynamics.
  21. Thomas, Carlos & Zanetti, Francesco, 2009. "Labor market reform and price stability: An application to the Euro Area," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 885-899, September.
  22. Pushan Dutt & Devashish Mitra & Priya Ranjan, 2007. "International Trade and Unemployment: Theory and Cross-National Evidence," Working Papers 070808, University of California-Irvine, Department of Economics.
  23. Monique Ebell & Christian Haefke, 2008. "Product market deregulation and the U.S. employment miracle," LSE Research Online Documents on Economics 19569, London School of Economics and Political Science, LSE Library.
  24. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Inequality and Unemployment in a Global Economy," NBER Working Papers 14478, National Bureau of Economic Research, Inc.
  25. Faia, Ester, 2007. "Ramsey monetary policy with labour market frictions," Working Paper Series 0707, European Central Bank.
  26. Giancarlo Corsetti & Philippe Martin & Paolo A. Pesenti, 2005. "Productivity Spillovers, Terms of Trade and the "Home Market Effect"," NBER Working Papers 11165, National Bureau of Economic Research, Inc.
  27. Gueorgui Kambourov, 2009. "Labour Market Regulations and the Sectoral Reallocation of Workers: The Case of Trade Reforms," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1321-1358.
  28. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2011. "Trade and Labor Market Outcomes," NBER Working Papers 16662, National Bureau of Economic Research, Inc.
  29. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  30. Wacziarg, Romain & Wallack, Jessica Seddon, 2004. "Trade liberalization and intersectoral labor movements," Journal of International Economics, Elsevier, vol. 64(2), pages 411-439, December.
  31. Pierre-Richard Agénor & Joshua Aizenman, 1995. "Trade Liberalization and Unemployment," IMF Working Papers 95/20, International Monetary Fund.
  32. Julian di Giovanni & Andrei A. Levchenko, 2006. "Trade Openness and Volatility," Development Working Papers 219, Centro Studi Luca d\'Agliano, University of Milano.
  33. Gomez-Salvador, Ramon & Messina, Julian & Vallanti, Giovanna, 2004. "Gross job flows and institutions in Europe," Labour Economics, Elsevier, vol. 11(4), pages 469-485, August.
  34. Marianne Baxter & Michael A. Kouparitsas, 2004. "Determinants of Business Cycle Comovement: A Robust Analysis," NBER Working Papers 10725, National Bureau of Economic Research, Inc.
  35. Elhanan Helpman & Oleg Itskhoki, 2007. "Labor Market Rigidities, Trade and Unemployment," NBER Working Papers 13365, National Bureau of Economic Research, Inc.
  36. Julián Messina & Giovanna Vallanti, 2007. "Job Flow Dynamics and Firing Restrictions: Evidence from Europe," Economic Journal, Royal Economic Society, vol. 117(521), pages 279-301, 06.
  37. Ghironi, Fabio & Melitz, Marc, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," Scholarly Articles 3228377, Harvard University Department of Economics.
  38. Krause, Michael & López-Salido, J David & Lubik, Thomas, 2008. "Inflation Dynamics with Search Frictions: A Structural Econometric Analysis," CEPR Discussion Papers 6810, C.E.P.R. Discussion Papers.
  39. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
  40. John Haltiwanger & Stefano Scarpetta & Helena Schweiger, 2008. "Assessing Job Flows Across Countries: The Role of Industry, Firm Size and Regulations," NBER Working Papers 13920, National Bureau of Economic Research, Inc.
  41. M. Ayhan Kose & Kei-Mu Yi, 2001. "International Trade and Business Cycles: Is Vertical Specialization the Missing Link?," American Economic Review, American Economic Association, vol. 91(2), pages 371-375, May.
  42. Aart Kraay & Jaume Ventura, 2007. "Comparative Advantage and the Cross-section of Business Cycles," Journal of the European Economic Association, MIT Press, vol. 5(6), pages 1300-1333, December.
  43. Paulo Santos Monteiro & Luciana Juvenal, 2012. "Trade and Synchronization in a Multi Country Economy," 2012 Meeting Papers 59, Society for Economic Dynamics.
  44. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
  45. Krause, Michael U. & Lubik, Thomas A., 2007. "The (ir)relevance of real wage rigidity in the New Keynesian model with search frictions," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 706-727, April.
  46. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  47. Matteo Cacciatore & Giuseppe Fiori & Fabio Ghironi, 2013. "Market Deregulation and Optimal Monetary Policy in a Monetary Union," NBER Working Papers 19025, National Bureau of Economic Research, Inc.
  48. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2010. "Multiple-product firms and product switching," LSE Research Online Documents on Economics 27861, London School of Economics and Political Science, LSE Library.
  49. Dix-Carneiro, Rafael, 2011. "Trade liberalization and labor market dynamics," WTO Staff Working Papers ERSD-2011-19, World Trade Organization (WTO), Economic Research and Statistics Division.
  50. Jaume Ventura, 1998. "Comparative Advantage and the Cross-Section of Business Cycles," Working papers 98-9, Massachusetts Institute of Technology (MIT), Department of Economics.
  51. repec:spo:wpecon:info:hdl:2441/9244 is not listed on IDEAS
  52. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, vol. 74(4), pages 1013-1062, 07.
  53. Andrei Zlate, 2010. "Offshore production and business cycle dynamics with heterogeneous firms," International Finance Discussion Papers 995, Board of Governors of the Federal Reserve System (U.S.).
  54. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series 2000, CESifo Group Munich.
  55. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 3-26, Summer.
  56. Kei-Mu Yi & M. Ayhan Kose, 2005. "Can the Standard International Business Cycle Model Explain the Relation Between Trade and Comovement?," IMF Working Papers 05/204, International Monetary Fund.
  57. Blanchard, J.O., 1989. "The Aggregate Matching Function," Working papers 538, Massachusetts Institute of Technology (MIT), Department of Economics.
  59. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
  60. Daniel Trefler, 2001. "The Long and Short of the Canada-U.S. Free Trade Agreement," NBER Working Papers 8293, National Bureau of Economic Research, Inc.
  61. César Calderón & Alberto Chong & Ernesto Stein, 2002. "Trade Intensity and Business Cycle Synchronization: Are Developing Countries Any Different?," Working Papers Central Bank of Chile 195, Central Bank of Chile.
  62. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  63. Balakrishnan, R. & Michelacci, C., 1998. "Unemployment Dynamics Across OECD Countries," Papers 9806, Centro de Estudios Monetarios Y Financieros-.
  64. Steven J. Davis & John Haltiwanger & Scott Schuh, 1993. "Small Business and Job Creation: Dissecting the Myth and Reassessing theFacts," NBER Working Papers 4492, National Bureau of Economic Research, Inc.
  65. John Haltiwanger & Adriana Kugler & Maurice Kugler & Alejandro Micco & Carmen Pages, 2004. "Effects of tariffs and real exchange rates on job reallocation: evidence from Latin America," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 7(4), pages 191-208.
  66. Paul Bergin & Reuven Glick, 2005. "Endogenous Tradability andMacroeconomic Implications," Working Papers 513, University of California, Davis, Department of Economics.
  67. Ariel Burstein & Marc J. Melitz, 2011. "Trade Liberalization and Firm Dynamics," NBER Working Papers 16960, National Bureau of Economic Research, Inc.
  68. Mark P. Moore & Priya Ranjan, 2005. "Globalisation vs Skill-Biased Technological Change: Implications for Unemployment and Wage Inequality," Economic Journal, Royal Economic Society, vol. 115(503), pages 391-422, 04.
  69. Levinsohn, James, 1999. "Employment responses to international liberalization in Chile," Journal of International Economics, Elsevier, vol. 47(2), pages 321-344, April.
  70. Bart Hobijn & Aysegül Sahin, 2007. "Job-finding and separation rates in the OECD," Staff Reports 298, Federal Reserve Bank of New York.
  71. Silvio Contessi, 2010. "How does multinational production change international comovement?," Working Papers 2010-041, Federal Reserve Bank of St. Louis.
  72. Bejan, Maria, 2006. "Trade Openness and Output Volatility," MPRA Paper 2759, University Library of Munich, Germany.
  73. Reuven Glick & Paul Bergin, 2003. "Endogenous Nontradability and Macroeconomic Implications," Computing in Economics and Finance 2003 106, Society for Computational Economics.
  74. Jean-Pierre LAFFARGUE, 1990. "Résolution d'un modèle macroéconomique avec anticipations rationnelles," Annals of Economics and Statistics, GENES, issue 17, pages 97-119.
  75. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  76. Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864 Elsevier.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:93:y:2014:i:1:p:17-30. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.