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International Trade and Unemployment: A Quantitative Framework

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  • Benedikt Heid
  • Mario Larch

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 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

  • Benedikt Heid & Mario Larch, 2012. "International Trade and Unemployment: A Quantitative Framework," CESifo Working Paper Series 4013, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_4013
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Sebastian Benz & Erdal Yalcin, 2015. "Productivity Versus Employment: Quantifying the Economic Effects of an EU–Japan Free Trade Agreement," The World Economy, Wiley Blackwell, vol. 38(6), pages 935-961, June.
    2. Carrère, Céline & Grujovic, Anja & Robert-Nicoud, Frédéric, 2015. "Trade and frictional unemployment in the global economy," LSE Research Online Documents on Economics 66490, London School of Economics and Political Science, LSE Library.
    3. Sirries, Steffen & Larch, Mario, 2014. "International Trade and MIgration: A Quantitative Framework," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100516, Verein für Socialpolitik / German Economic Association.
    4. Pessoa, João Paulo, 2016. "International competition and labor market adjustment," LSE Research Online Documents on Economics 66426, London School of Economics and Political Science, LSE Library.
    5. Fritz Breuss, 2014. "TTIP and its Effects on Austria. A Critical Literature Survey," WIFO Working Papers 468, WIFO.
    6. Gabriel Felbermayr, 2016. "Economic Analysis of TTIP," ifo Working Paper Series 215, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    7. Heid, Benedikt & Larch, Mario, 2016. "Gravity with unemployment," Journal of International Economics, Elsevier, vol. 101(C), pages 70-85.
    8. Gabriel Felbermayr & Mario Larch, 2014. "Transatlantic Free Trade: Questions and Answers from the Vantage Point of Trade Theory," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(4), pages 03-17, January.
    9. repec:gnv:wpaper:unige:77631 is not listed on IDEAS
    10. Heid, Benedikt, 2014. "Preferential Trade Agreements, Unemployment, and the Informal Sector," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100376, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    international trade; 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

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