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Globalization, Trade Imbalances, and Labor Market Adjustment

Author

Listed:
  • Rafael Dix-Carneiro

    (Duke University)

  • Ricardo Reyes-Heroles

    (Federal Reserve Board)

  • Sharon Traiberman

    (NYU)

Abstract

Why should we care about trade deficits? According to prominent theories of trade imbalances, trade deficits are a mechanism through which nations insure against negative shocks and smooth consumption over time; indeed, in these models the deficit has no bearing on the actual implications of trade shocks. This research argues that in more realistic settings with slow and imperfect reallocation of resources across sectors, trade deficits can have important implications for the adjustment process in response to trade shocks (such as trade liberalization or the emergence of China as a major global player). Concretely, maintaining large trade deficits for extended periods of time can substantially prolong the pain of trade-displaced workers, magnifying the unequal effects of trade on workers. If the government's objective function penalizes inequality, this magnification effect of can have important trade policy implications.

Suggested Citation

  • Rafael Dix-Carneiro & Ricardo Reyes-Heroles & Sharon Traiberman, 2018. "Globalization, Trade Imbalances, and Labor Market Adjustment," 2018 Meeting Papers 890, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:890
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Globalization, Trade Imbalances, and Labor Market Adjustment
      by Christian Zimmermann in NEP-DGE blog on 2021-04-05 21:16:45

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    Cited by:

    1. Rafael Dix-Carneiro, 2019. "Trade and Informality in the Presence of Labor Market Frictions and Regulations," 2019 Meeting Papers 144, Society for Economic Dynamics.
    2. Autor, David & Dorn, David & Hanson, Gordon, 2021. "On the Persistence of the China Shock," CEPR Discussion Papers 16688, C.E.P.R. Discussion Papers.
    3. Dorn, David & Levell, Peter, 2021. "Trade and Inequality in Europe and the US," CEPR Discussion Papers 16780, C.E.P.R. Discussion Papers.
    4. Stephen J. Redding, 2020. "Trade and geography," CEP Discussion Papers dp1718, Centre for Economic Performance, LSE.
    5. Mariarosaria Comunale & Justas Dainauskas & Povilas Lastauskas, 2021. "What explains excess trade persistence? A theory of habits in the supply chains," CAMA Working Papers 2021-11, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    6. Andres Rodriguez-Clare & Mauricio Ulate & Jose P. Vasquez, 2020. "New-Keynesian Trade: Understanding the Employment and Welfare Effects of Trade Shocks," Working Papers 265, Princeton University, Department of Economics, Center for Economic Policy Studies..

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    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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