The Portuguese intra-industry tradeand the labor market adjustment costs: The SAH Again

Horácio Faustino () and Nuno Leitão

No 2010/08, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: This paper provides an empirical test of the SAH (Smooth Adjustment Hypothesis) using data from Portugal. According to SAH, intra-industry trade leads to relatively lower adjustment costs in comparison to inter-industry trade. The paper tests the SAH by using a dynamic panel data analysis that takes into account lagged effects of changes in the MIIT (Marginal Intra-Industry Trade) index. The regressions use the absolute change in the total employment in a given industry as a proxy for trade adjustment costs. The main results imply that a higher MIIT leads to lower adjustment costs in the same year. More specifically, the coefficients of the MIIT index are negative and statistically significant in all regressions. These results provide support for the SAH. In addition, the coefficients of the lagged MIIT indicators (one or two period) are mostly positive but not significant throughout. These findings highlight the importance of lagged trade indicators in affecting labor reallocation outcomes and thus adjustment costs.

Keywords: Adjustment costs; dynamic panel data, labor market; marginal intraindustry trade, smooth adjustment hypothesis, Portugal. (search for similar items in EconPapers)
Date: 2010-05
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (5)

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