Comparative advantage and equilibrium unemployment

Carrère, Céline, Fugazza, Marco, Olarreaga, Marcelo and Robert-Nicoud, Frédéric (2020) Comparative advantage and equilibrium unemployment. European Economic Review, 127. ISSN 0014-2921

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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.

Item Type:	Article
Additional Information:	© 2020 The Authors
Divisions:	Spatial Economics Research Centre
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HC Economic History and Conditions
JEL classification:	F - International Economics > F1 - Trade > F10 - General F - International Economics > F1 - Trade > F13 - Commercial Policy; Protection; Promotion; Trade Negotiations; International Trade Organizations F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions
Date Deposited:	07 Jul 2022 12:24
Last Modified:	17 Oct 2024 17:52
URI:	http://eprints.lse.ac.uk/id/eprint/115504

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