IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

North-South Trade, Unemployment and Growth: What’s the Role of Labor Unions?

  • Wolf-Heimo Grieben


    (Department of Economics, University of Konstanz, Germany)

  • Fuat Sener


    (Department of Economics, Union College, Schenectady, New York, USA)

We construct a North-South product-cycle model of trade with fully-endogenous growth in which both countries experience unemployment due to union wage bargaining. We find that unilateral Northern trade liberalization reduces growth and increases unemployment in both countries, while unilateral Southern trade liberalization has the opposite effects. We show that the existence of labor unions matters for trade liberalization to have any effect on Northern innovation and worldwide growth. For empirically plausible parameter values, bilateral trade liberalization by equal amounts increases growth and reduces unemployment in both countries. Stronger Northern labor unions hurt both countries by reducing growth and increasing unemployment. However, stronger Southern labor unions exert a positive growth effect for both countries, while decreasing Northern unemployment and increasing Southern unemployment.

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: no

Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2012-06.

in new window

Length: 44 pages
Date of creation: 31 Mar 2012
Date of revision:
Handle: RePEc:knz:dpteco:1206
Contact details of provider: Postal: D-78457 Konstanz
Phone: +49-7531-88-3713
Fax: +49-7531-88-3130
Web page:

More information through EDIRC

Order Information: Web:

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. Kjell Erik Lommerud & Frode Meland & Odd Rune Straume, 2005. "Can Deunionization Lead to International Outsourcing?," CESifo Working Paper Series 1545, CESifo Group Munich.
  2. Susanto Basu, 1995. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," NBER Working Papers 5336, National Bureau of Economic Research, Inc.
  3. Eckel, Carsten & Egger, Hartmut, 2009. "Wage bargaining and multinational firms," Journal of International Economics, Elsevier, vol. 77(2), pages 206-214, April.
  4. Rupayan Pal, 2008. "Estimating the probability of trade union membership in India: Impact of Communist parties, personal attributes and industrial characteristics," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2008-015, Indira Gandhi Institute of Development Research, Mumbai, India.
  5. 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).
  6. 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.
  7. Mezzetti, Claudio & Dinopoulos, Elias, 1991. "Domestic unionization and import competition," Journal of International Economics, Elsevier, vol. 31(1-2), pages 79-100, August.
  8. Diego Puga & Daniel Trefler, 2007. "Wake up and Smell the Ginseng: International Trade and the Rise of Incremental Innovation in Low-Wage Countries," Development Working Papers 222, Centro Studi Luca d\'Agliano, University of Milano.
  9. Boulhol, Hervé, 2011. "Unemployment and relative labor market institutions between trading partners," Journal of International Economics, Elsevier, vol. 83(1), pages 83-91, January.
  10. Grieben Wolf-Heimo, 2004. "Schumpeterian Growth, North-South Trade and Wage Rigidity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-46, October.
  11. David N. DeJong & Marla Ripoll, 2006. "Tariffs and Growth: An Empirical Exploration of Contingent Relationships," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 625-640, November.
  12. Gustafsson, Peter & Segerstrom, Paul, 2010. "North-South trade with increasing product variety," Journal of Development Economics, Elsevier, vol. 92(2), pages 97-106, July.
  13. Bastos, Paulo & Kreickemeier, Udo, 2009. "Unions, competition and international trade in general equilibrium," Journal of International Economics, Elsevier, vol. 79(2), pages 238-247, November.
  14. Xing, Yuqing & Detert, Neal, 2010. "How the iPhone Widens the United States Trade Deficit with the People's Republic of China," ADBI Working Papers 257, Asian Development Bank Institute.
  15. Kjell Erik Lommerud & Frode Meland & Odd Rune Straume, 2010. "North-South technology transfer in unionised multinationals," NIPE Working Papers 35/2010, NIPE - Universidade do Minho.
  16. Elhanan Helpman & Oleg Itskhoki, 2007. "Labor Market Rigidities, Trade and Unemployment," NBER Working Papers 13365, National Bureau of Economic Research, Inc.
  17. Andreas Billmeier & Tommaso Nannicini, 2009. "Trade Openness and Growth: Pursuing Empirical Glasnost," IMF Staff Papers, Palgrave Macmillan, vol. 56(3), pages 447-475, August.
  18. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  19. Hasan, Rana & Mitra, Devashish & Ranjan, Priya & Ahsan, Reshad N., 2012. "Trade liberalization and unemployment: Theory and evidence from India," Journal of Development Economics, Elsevier, vol. 97(2), pages 269-280.
  20. Arnold, Lutz G., 2002. "On the growth effects of North-South trade: the role of labor market flexibility," Journal of International Economics, Elsevier, vol. 58(2), pages 451-466, December.
  21. Ben-David, Dan & Loewy, Michael B, 2000. "Knowledge Dissemination, Capital Accumulation, Trade, and Endogenous Growth," Oxford Economic Papers, Oxford University Press, vol. 52(4), pages 637-50, October.
  22. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
  23. Liu, Qian, 2012. "Unemployment and labor force participation in urban China," China Economic Review, Elsevier, vol. 23(1), pages 18-33.
  24. Naylor, Robin, 1999. "Union Wage Strategies and International Trade," Economic Journal, Royal Economic Society, vol. 109(452), pages 102-25, January.
  25. Norrbin, Stefan C, 1993. "The Relation between Price and Marginal Cost in U.S. Industry: A Contradiction," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1149-64, December.
  26. Segerstrom, Paul & Stepanok, Ignat, 2010. "Learning How to Export," SSE/EFI Working Paper Series in Economics and Finance 0727, Stockholm School of Economics, revised 14 Dec 2010.
  27. Naito, Takumi, 2012. "A Ricardian model of trade and growth with endogenous trade status," Journal of International Economics, Elsevier, vol. 87(1), pages 80-88.
  28. Dinopoulos, Elias & Unel, Bulent, 2011. "Quality heterogeneity and global economic growth," European Economic Review, Elsevier, vol. 55(5), pages 595-612, June.
  29. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," World Bank Economic Review, World Bank Group, vol. 22(2), pages 187-231, June.
  30. Noguer, Marta & Siscart, Marc, 2005. "Trade raises income: a precise and robust result," Journal of International Economics, Elsevier, vol. 65(2), pages 447-460, March.
  31. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series 2000, CESifo Group Munich.
  32. Charles I. Jones, 2002. "Sources of U.S. Economic Growth in a World of Ideas," American Economic Review, American Economic Association, vol. 92(1), pages 220-239, March.
  33. Grieben, Wolf-Heimo & Sener, Fuat, 2009. "Globalization, rent protection institutions, and going alone in freeing trade," European Economic Review, Elsevier, vol. 53(8), pages 1042-1065, November.
  34. Lundborg, Per & Segerstrom, Paul S., 1998. "The Growth and Welfare Effects of International Mass Migration," Working Paper Series 146, Trade Union Institute for Economic Research.
  35. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Trade and unemployment: What do the data say?," European Economic Review, Elsevier, vol. 55(6), pages 741-758, August.
  36. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
  37. Tetsugen Haruyama & Laixun Zhao, 2008. "Trade and Firm Heterogeneity In A Quality-Ladder Model of Growth," Discussion Paper Series 223, Research Institute for Economics & Business Administration, Kobe University.
  38. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
  39. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-74, September.
  40. Lingens, Jorg, 2003. "The impact of a unionised labour market in a Schumpeterian growth model," Labour Economics, Elsevier, vol. 10(1), pages 91-104, February.
  41. Wolf-Heimo Grieben, 2005. "A Schumpeterian North-South Growth Model of Trade and Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 13(1), pages 106-128, 02.
  42. Palokangas, Tapio, 1996. "Endogenous growth and collective bargaining," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 925-944, May.
  43. Tapio Palokangas, 2004. "Union-Firm Bargaining, Productivity Improvement and Endogenous Growth," LABOUR, CEIS, vol. 18(2), pages 191-205, 06.
  44. Dinopoulos, Elias & Segerstrom, Paul, 1996. "A Schumpeterian Model of Protection and Relative Wages," Working Paper Series 471, Research Institute of Industrial Economics.
  45. Dinopoulos, Elias & Syropoulos, Constantinos, 1997. "Tariffs and Schumpeterian growth," Journal of International Economics, Elsevier, vol. 42(3-4), pages 425-452, May.
  46. Elias Dinopoulos & Constantinos Syropoulos, 2007. "Rent Protection as a Barrier to Innovation and Growth," Economic Theory, Springer, vol. 32(2), pages 309-332, August.
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:knz:dpteco:1206. 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: (Dr. Lisa Green)

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.