Article ID Journal Published Year Pages File Type
962436 Journal of International Economics 2009 13 Pages PDF
Abstract

We present a model of trade and search-induced unemployment, where trade results from Heckscher–Ohlin (H-O) and/or Ricardian comparative advantage. Using cross-country data on trade policy, unemployment, and various controls, and controlling for endogeneity and measurement-error problems, we find fairly strong and robust evidence for the Ricardian prediction that unemployment and trade openness are negatively related. This effect dominates the positive H-O effect of trade openness on unemployment for capital-abundant countries, which turns negative for labor-abundant countries. Using panel data, we find an unemployment-increasing short-run impact of trade liberalization, followed by an unemployment-reducing effect leading to the new steady state.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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