LABOR MARKET RIGIDITIES AND THE POLITICAL ECONOMY OF TRADE PROTECTION

Xenia Matschke

Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz

Abstract: Labor market rigidities are commonly believed to be a major reason for imposing trade impediments. In this paper, I introduce labor market rigidities (such as influential trade unions and high unemployment benefits), that are prevalent in continental European countries, into the well-known Grossman and Helpman (1994) protection for sale model, which has emerged as the leading model in the political economy of trade protection literature. I show that contrary to commonly held views, these labor market rigidities do not necessarily increase equilibrium trade protection. A testable equilibrium trade protection equation is also derived. The findings in this paper are hence particularly relevant for empirical tests of trade policy determinants in economies with more regulated labor markets.

Keywords: Tariffs; trade protection; protection for sale; labor market. (search for similar items in EconPapers)
Date: 2004-01-31
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Labor Market Rigidities and the Political Economy of Trade Protection (2004)
Working Paper: Labor Market Rigidities and the Political Economy of Trade Protection (2004)
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