Trade with Labor Market Distortions and Heterogeneous Labor: Why Trade Can Hurt

Kala Krishna (), Abhiroop Mukhopadhyay and Cemile Yavas

No 9086, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper explains the differential impacts of trade on countries in terms of institutional differences which result in factor market distortions. We modify the Ricardian, Specific Factor and Hecksher Ohlin models of trade to capture these. Trade has both terms of trade effects and output effects. Both work to raise welfare in an undistorted economy. In a distorted economy, price effects work to improve welfare, while output effects work to reduce it. Large distorted countries are more likely to lose from trade as beneficial price effects are lower. In addition the greater the substitutability between goods, the more likely it is that welfare rises through trade.

JEL-codes: F16 O17 (search for similar items in EconPapers)
Date: 2002-07
New Economics Papers: this item is included in nep-lab
Note: ITI
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Citations: View citations in EconPapers (7)

Published as Krishna, Kala & Yavas, Cemile, 2005. "When trade hurts: Consumption indivisibilities and labor market distortions," Journal of International Economics, Elsevier, vol. 67(2), pages 413-427, December.

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Chapter: Trade with Labor Market Distortions and Heterogeneous Labor: Why Trade Can Hurt (2005)
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