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Trade and Unemployment in Germany: An Empirical Exploration and Some Theory

Author

Listed:
  • Martin Klein

    (Martin Luther University Halle-Wittenberg)

  • Tobias Weirowski

    (Martin Luther University Halle-Wittenberg)

Abstract

This paper investigates the link between unemployment and external trade in Germany, using data on unemployment, international trade and economic activity for the 16 German federal states (Länder). With panel data econometrics we show that international trade as measured by state-wise trade shares have a significant negative impact on state-wise unemployment rates. We discuss to what extent this reflects mercantilist tendencies embedded in the political economy of the Federal Republic. There is no clear evidence in favor of simple mercantilism. We suggest three alternative explanations, linked to the structural rigidities of the German labor market, government involvement in the education and training system and certain labor market policies which provide government-subsidized unemployment insurance benefitting (mainly) export industries.

Suggested Citation

  • Martin Klein & Tobias Weirowski, 2011. "Trade and Unemployment in Germany: An Empirical Exploration and Some Theory," Global Financial Markets Working Paper Series 2011-24, Friedrich-Schiller-University Jena.
  • Handle: RePEc:hlj:hljwrp:24-2011
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    File URL: http://pubdb.wiwi.uni-jena.de/pdf/wp_hlj24-2011.pdf
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    References listed on IDEAS

    as
    1. Hans-Werner Sinn, 2005. "Basar-Ökonomie Deutschland - Exportweltmeister oder Schusslicht?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 58(06), pages 03-42, March.
    2. Sergio Cesaratto, 2010. "Europe, German Mercantilism and the Current Crisis," Department of Economics University of Siena 595, Department of Economics, University of Siena.
    3. Bun, Maurice J. G. & Kiviet, Jan F., 2003. "On the diminishing returns of higher-order terms in asymptotic expansions of bias," Economics Letters, Elsevier, vol. 79(2), pages 145-152, May.
    4. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    5. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
    6. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    7. 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.
    8. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
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    Citations

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    Cited by:

    1. John C. Anyanwu, 2014. "Does Intra-African Trade Reduce Youth Unemployment in Africa?," African Development Review, African Development Bank, vol. 26(2), pages 286-309, June.

    More about this item

    Keywords

    International trade; panel study;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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