A note on “Jobs, Jobs, Jobs: A “New” Perspective on Protectionism” of Costinot (2009)

Wisarut Suwanprasert

Economics Letters, 2017, vol. 157, issue C, 163-166

Abstract: In this paper, I re-investigate Costinot (2009) in a more general parameter space. The key insight of this paper is that the reason a small open economy uses trade protections is not because of the existence of search frictions in the labor markets, but the real motivation is from labor market inefficiency. I show that the restricted parameter space considered in Costinot (2009) generates an equilibrium with inefficiently high unemployment compared to the constrained-efficient level of unemployment, and thus trade protections can improve welfare. In the more general parameter space considered in this paper, despite the existence of search frictions in a labor market, free trade can be optimal if the labor market is efficient. In addition, unemployment can be inefficiently low and import subsidies are preferable. The result holds true for standard matching functions.

Keywords: Optimal trade policy; Unemployment (search for similar items in EconPapers)
JEL-codes: F13 F16 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:157:y:2017:i:c:p:163-166

DOI: 10.1016/j.econlet.2017.05.036

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