Working Paper: CEPR ID: DP1186
Authors: Giuseppe Bertola; Andrea Ichino
Abstract: The radical liberalization of foreign trade in Central and Eastern Europe since 1989 has been a key part of the economic reform and has been accompanied by a full-scale geographical reorientation of international trade from East to West. Increased trade with the EU has been associated with remarkably little change in the structure of that trade, which suggests that policy should be oriented towards facilitating rather than slowing industrial adjustment. Future trade policy priorities should include continued liberalization, better coordination of trade and exchange rate policy, the attraction of foreign direct investment, resistance to pressures for selective protection, further development of trade relations with the EU and of intra-regional trade relations, and full participation in the WTO.
Keywords: labour income inequality; job security; regional unemployment
JEL Codes: J23; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing volatility in labor demand (J23) | widening wage differentials in the US during the 1970s and 1980s (J31) |
| widening wage differentials in the US during the 1970s and 1980s (J31) | higher option value of work in currently depressed regions (J68) |
| higher option value of work in currently depressed regions (J68) | larger wage differentials to incentivize mobility (J62) |
| idiosyncratic volatility (G19) | increased wage dispersion in flexible markets (F66) |
| idiosyncratic volatility (G19) | higher aggregate unemployment in rigid labor markets (J48) |
| centralized wage setting and job security legislation (J38) | persistent unemployment in Europe (J64) |