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Terms of Trade Shocks and Endogenous Search Unemployment: A Two-sector Model with Non-Traded goods

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  • Yu Sheng
  • Xingpeng Xu

Abstract

We develop a simple and tractable two-sector search model featuring a non-traded sector and endogenous search unemployment to examine the impact of terms of trade shocks on unemployment. We show that changes in terms of trade will not only lead to employment reallocation across sectors, as in the traditional trade models, but more importantly, impact upon search unemployment within each sector. Specifically, we show that an improvement (deterioration) of terms of trade reduces (increases) unemployment rates in both traded and non-traded sectors.

Suggested Citation

  • Yu Sheng & Xingpeng Xu, 2007. "Terms of Trade Shocks and Endogenous Search Unemployment: A Two-sector Model with Non-Traded goods," DEGIT Conference Papers c012_025, DEGIT, Dynamics, Economic Growth, and International Trade.
    • Handle: RePEc:deg:conpap:c012_025
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    Cited by:

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    2. Noel GASTON & YOSHIMI Taiyo, 2020. "Heterogenous Job Separations and the Balassa-Samuelson Effect," Discussion papers 20032, Research Institute of Economy, Trade and Industry (RIETI).
    3. Gaston, Noel & Yoshimi, Taiyo, 2023. "The Balassa-Samuelson model with job separations," Japan and the World Economy, Elsevier, vol. 65(C).
    4. Juan Pablo Medina & Alberto Naudon, 2012. "Labor Market Dynamic in Chile:The Role of the Terms of Trade," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 15(1), pages 32-75, April.
    5. Bandopadhyay, Titas Kumar & Chaudhuri, Sarbajit, 2011. "Job-search and foreign capital inflow — A two sector general equilibrium analysis," Economic Modelling, Elsevier, vol. 28(6), pages 2494-2501.
    6. Bandopadhyay, Titas Kumar, 2014. "Economic Reforms, Frictional Unemployment and Wage Inequality-----A General Equilibrium Analysis," MPRA Paper 59819, University Library of Munich, Germany.
    7. Chaudhuri, Sarbajit & Bandopadhyay, Titas Kumar, 2013. "Job-search and foreign capital inflow — A three-sector general equilibrium analysis," Economic Modelling, Elsevier, vol. 35(C), pages 159-169.
    8. Bandopadhyay, Titas Kumar, 2014. "Job-Searching and Job-Matching in a Two-Sector General Equilibrium Model," MPRA Paper 59039, University Library of Munich, Germany.

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    More about this item

    Keywords

    two-sector search model; trade and unemployment; non-traded good;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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