Intra-industry trade and labor costs: The smooth adjustment hypothesis

Horácio Faustino () and Nuno Leitão

No 2009/17, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: According to the smooth adjustment hypothesis (SAH), the labor-market adjustment costs in the form of unemployed resources will be lower if trade expansion is intra-industry rather than inter-industry in nature. This is what we attempt to test empirically using the Brulhart (1994) marginal intra-industry trade (MIIT) index and a dynamic panel data analysis. Considering the contemporaneous effect the results do not support the SAH. However, if we consider the one- year and-two years lags effects, the conclusion is different and it is sensitive to the size of the lag. Comparing with other empirical studies our results suggest that the validity of SAH depends on the variable choose as adjustment labor cost index, the time lag structure and the set of control variables. KEY Words: Adjustment costs; labor market; marginal intra-industry trade.

JEL-codes: C33 F16 J30 (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-int and nep-lab
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Citations: View citations in EconPapers (8)

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More papers in Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa Department of Economics, ISEG - Lisbon School of Economics and Management, Universidade de Lisboa, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL.
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