International trade and unemployment: Theory and cross-national evidence

Pushan Dutt, Devashish Mitra () and Priya Ranjan

Journal of International Economics, 2009, vol. 78, issue 1, pages 32-44

Abstract: We present a model of trade and search-induced unemployment, where trade results from Heckscher-Ohlin (H-O) and/or Ricardian comparative advantage. Using cross-country data on trade policy, unemployment, and various controls, and controlling for endogeneity and measurement-error problems, we find fairly strong and robust evidence for the Ricardian prediction that unemployment and trade openness are negatively related. This effect dominates the positive H-O effect of trade openness on unemployment for capital-abundant countries, which turns negative for labor-abundant countries. Using panel data, we find an unemployment-increasing short-run impact of trade liberalization, followed by an unemployment-reducing effect leading to the new steady state.

Keywords: Trade; Search; Unemployment; Ricardian; Heckscher-Ohlin (search for similar items in EconPapers)
Date: 2009
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Related works:
Working Paper: International Trade and Unemployment: Theory and Cross-National Evidence (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:inecon:v:78:y:2009:i:1:p:32-44

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