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External terms-of-trade and labor market imperfections in developing countries: theory and evidence

Sarbajit Chaudhuri () and Anindya Biswas

MPRA Paper from University Library of Munich, Germany

Abstract: The paper addresses the question of whether developing countries possess any built-in mechanism that can cope with external terms-of-trade (TOT) shocks. Using a two-sector, full-employment general equilibrium model with endogenous labor market distortion theoretically it shows that such countries possess an inherent shock-absorbing mechanism that stems from their peculiar institutional characteristics and can lessen the gravity of detrimental welfare consequence of exogenous TOT movements. This result has been found to be empirically valid based on a panel dataset of 13 countries from 2000-2012. Our analyses lead to recommendation of an important policy that should be adhered to preserve this in-built system.

Keywords: Terms-of-trade shocks; Labor market imperfection; Welfare; Developing countries; Panel Data. (search for similar items in EconPapers)
JEL-codes: D59 D60 F13 F41 F52 J42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
Date: 2014-10-09
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