Intersectoral adjustment and unemployment in a two-country Ricardian model
In a two-country Ricardian model, we study the dynamics of intersectoral reallocation of labour following upon a once and for ail move to free trade. The job creation/destruction process in both sectors is slow and this results in unemployment during the transition toward the long run free trade equilibrium. We identify different free trade regimes depending on whether or not the world relative price is between the two autarkic prices. In some regimes, one of the two countries overshoots its autarkic equilibrium i.e. temporarily specializes according to its comparative disadvantage. In that case, welfare increases in both countries. In other regimes, the adjustment process is monotonie in both countries but welfare increases in only one country. When the two countries have "very" different rates of job creation/destruction, the world price adjusts in such a way that the difference in adjustment speed between the two countries decreases.
|Date of creation:||01 Jun 2004|
|Date of revision:|
|Contact details of provider:|| Postal: Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium)|
Fax: +32 10473945
Web page: http://www.uclouvain.be/ires
More information through EDIRC
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.:
- Larry Karp & Thierry Paul, 2005.
"Intersectoral Adjustment and Policy Intervention: the Importance of General-Equilibrium Effects,"
Review of International Economics,
Wiley Blackwell, vol. 13(2), pages 330-355, 05.
- Karp, Larry & Paul, Thierry, 2002. "Intersectoral Adjustment and Policy Intervention: the Importance of General Equilibrium Effects," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7rk3z9w1, Department of Agricultural & Resource Economics, UC Berkeley.
- Karp, Larry S. & Theirry, Paul, 2002. "Intersectoral Adjustment and Policy Intervention: the Importance of General Equilibrium Effects," CUDARE Working Paper Series 893R, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Dehejia, Vivek, 1997.
"Will Gradualism Work When Shock Therapy Doesn't?,"
CEPR Discussion Papers
1552, C.E.P.R. Discussion Papers.
- Daniel S. Hamermesh & Gerard A. Pfann, 1996.
"Adjustment Costs in Factor Demand,"
Journal of Economic Literature,
American Economic Association, vol. 34(3), pages 1264-1292, September.
- Robert C. Feenstra & Tracy R. Lewis, 1991.
"Trade Adjustment Assistance and Pareto Gains From Trade,"
NBER Working Papers
3845, National Bureau of Economic Research, Inc.
- Feenstra, Robert C. & Lewis, Tracy R., 1994. "Trade adjustment assistance and Pareto gains from trade," Journal of International Economics, Elsevier, vol. 36(3-4), pages 201-222, May.
- Feenstra, R.C. & Lewis, T.R., 1989. "Trade Adjustment Assistance And Pareto Gains From Trade," Papers 343, California Davis - Institute of Governmental Affairs.
- K.C. Fung & Robert W. Staiger, 1994.
"Trade Liberalization and Trade Adjustment Assistance,"
- K.C. Fung & Robert W. Staiger, 1994. "Trade Liberalization and Trade Adjustment Assistance," NBER Working Papers 4847, National Bureau of Economic Research, Inc.
- Karp, Larry & Paul, Thierry, 1994.
"Phasing In and Phasing Out Protectionism with Costly Adjustment of Labour,"
Royal Economic Society, vol. 104(427), pages 1379-92, November.
- Karp, Larry & Paul, Thierry, 1993. "Phasing in and Phasing Out Protectionism with Costly Adjustment of Labour," CEPR Discussion Papers 856, C.E.P.R. Discussion Papers.
- Karp, Larry S. & Paul, Thierry, 1993. "Phasing In And Phasing Out Protectionism With Costly Adjustments Of Labour," Working Papers 51112, International Agricultural Trade Research Consortium.
- Karp, Larry & Paul, Thierry, 1998. "Labor adjustment and gradual reform: when is commitment important?," Journal of International Economics, Elsevier, vol. 46(2), pages 333-362, December.
- Dixit, Avinash, 1989. "Intersectoral capital reallocation under price uncertainty," Journal of International Economics, Elsevier, vol. 26(3-4), pages 309-325, May.
- J. Peter Neary, 1982. "Intersectoral Capital Mobility, Wage Stickiness, and the Case for Adjustment Assistance," NBER Chapters, in: Import Competition and Response, pages 39-72 National Bureau of Economic Research, Inc.
- Mussa, Michael, 1974. "Tariffs and the Distribution of Income: The Importance of Factor Specificity, Substitutability, and Intensity in the Short and Long Run," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1191-1203, Nov.-Dec..
- Baldwin, Richard & Venables, Anthony J, 1994. "International Migration, Capital Mobility and Transitional Dynamics," Economica, London School of Economics and Political Science, vol. 61(243), pages 285-300, August.
- Dixit, Avinash & Rob, Rafael, 1994. "Risk-sharing, adjustment, and trade," Journal of International Economics, Elsevier, vol. 36(3-4), pages 263-287, May.
- Mayer, Wolfgang, 1974. "Short-Run and Long-Run Equilibrium for a Small Open Economy," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 955-67, Sept./Oct.
When requesting a correction, please mention this item's handle: RePEc:ctl:louvre:2004023. 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: (Sebastien SCHILLINGS)
If references are entirely missing, you can add them using this form.