Comparative advantage and equilibrium unemployment

Celine Carrere, Marco Fugazza, Marcelo Olarreaga and Frederic Robert-Nicoud

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We embed a model of the labour market with sector-specific search-and-matching frictions into a Ricardian model with a continuum of goods to show that trade reduces unemployment in countries with comparative advantage in sectors with more efficient labour markets and leads to higher unemployment in countries with comparative advantage in sectors with less efficient labour markets. We test this prediction in a panel dataset of 107 countries covering the period 1995–2009 and find that the data support this theoretical prediction. Our results also help reconcile the apparently contradicting evidence in the empirical literature on the impact of trade on unemployment.

Keywords: comparative advantage; search unemployment; trade (search for similar items in EconPapers)
JEL-codes: F10 F13 F16 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2020-08-01
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

Published in European Economic Review, 1, August, 2020, 127. ISSN: 0014-2921

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Journal Article: Comparative advantage and equilibrium unemployment (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:115504

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