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FDI, skill-specific unemployment, and institutional spillover effects

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  • Schmerer, Hans-Jörg

Abstract

This paper proposes a multi-industry trade model with integrated capital markets and Mortensen and Pissarides search frictions in the labor market. Institutional changes in the model trigger adjustments at the intensive and extensive margin of labor demand. At the extensive margin a shift of the specialization pattern amongst the integrated countries magnifies the effects at the intensive industry margin via trade and FDI. Moreover, the distinction between high- and low-skill workers facilitates the analysis of skill-specific institutional changes. A government can influence wages and unemployment of the low-skilled by manipulating labor market institutions concerning high-skill workers only. One-sided interventions affect all workers at home and abroad irrespective of their level of skill.

Suggested Citation

  • Schmerer, Hans-Jörg, 2012. "FDI, skill-specific unemployment, and institutional spillover effects," Economics Discussion Papers 2012-2, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwedp:20122
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    References listed on IDEAS

    as
    1. Schmerer, Hans-Jörg, 2014. "Foreign direct investment and search unemployment: Theory and evidence," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 41-56.
    2. Boulhol, Herv, 2009. "Do capital market and trade liberalization trigger labor market deregulation?," Journal of International Economics, Elsevier, vol. 77(2), pages 223-233, April.
    3. 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.
    4. Peter Egger & David Greenaway & Tobias Seidel, 2011. "Rigid labour markets with trade and capital mobility: theory and evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 44(2), pages 509-540, May.
    5. Elhanan Helpman & Oleg Itskhoki, 2010. "Labour Market Rigidities, Trade and Unemployment," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1100-1137.
    6. Davidson, Carl & Matusz, Steven J. & Shevchenko, Andrei, 2008. "Outsourcing Peter To Pay Paul: High-Skill Expectations And Low-Skill Wages With Imperfect Labor Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 12(04), pages 463-479, September.
    7. Hartmut Egger & Udo Kreickemeier, 2017. "Firm Heterogeneity and the Labor Market Effects of Trade Liberalization," World Scientific Book Chapters,in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 10, pages 265-306 World Scientific Publishing Co. Pte. Ltd..
    8. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity," Journal of Economic Theory, Elsevier, vol. 146(1), pages 39-73, January.
    9. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, July.
    10. Beissinger, Thomas, 2001. "The Impact of Labor Market Reforms on Capital Flows, Wages and Unemployment," IZA Discussion Papers 390, Institute for the Study of Labor (IZA).
    11. Wilhelm Kohler & Jens Wrona, 2010. "Offshoring Tasks, yet Creating Jobs?," CESifo Working Paper Series 3019, CESifo Group Munich.
    12. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Wages, Unemployment and Inequality with Heterogeneous Firms and Workers," NBER Working Papers 14122, National Bureau of Economic Research, Inc.
    13. Gerald Epstein & Elissa Braunstein, 2002. "Bargaining Power and Foreign Direct Investment in China: Can 1.3 Billion Consumers Tame the Multinationals?," Working Papers wp45, Political Economy Research Institute, University of Massachusetts at Amherst.
    14. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
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    16. Mark P. Moore & Priya Ranjan, 2005. "Globalisation vs Skill-Biased Technological Change: Implications for Unemployment and Wage Inequality," Economic Journal, Royal Economic Society, vol. 115(503), pages 391-422, April.
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    More about this item

    Keywords

    FDI; globalization; search unemployment; labor market institutions;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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