Unemployment after trade liberalization

Soo Hyun (Catherine) Oh and Dongwoo Yoo

Asia-Pacific Journal of Accounting & Economics, 2020, vol. 27, issue 6, 745-768

Abstract: This paper develops a dynamic general equilibrium model of international trade by incorporating labor market friction into the traditional Heckscher–Ohlin framework. Mutual trade reform encourages the production of firms in the comparative advantage sectors (de-regulation effect) but discourages that in the comparative disadvantage sectors (de-protection effect). When search friction and intersectoral labor barrier are present, the de-protection effect is not canceled out by the de-regulation effect, and we have a U-shaped long-run equilibrium employment curve along the tariff rates. Our empirical analysis also indicates a humped U-shaped relationship between tariff and unemployment.

Date: 2020
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DOI: 10.1080/16081625.2018.1460209

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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