Working Paper: CEPR ID: DP9916
Authors: Cline Carrre; Marco Fugazza; Marcelo Olarreaga; Frdric Robert-Nicoud
Abstract: We embed a model of the labor market with sector-specific search-and-matching frictions into a Ricardian model with a continuum of goods to show that trade liberalization causes higher unemployment in countries with comparative advantage in sectors with strong labor market frictions and leads to lower unemployment in countries with comparative advantage in sectors with weak labor market frictions. We test this prediction in a panel dataset of 97 countries during the period 1995-2009 and find that the data supports the theoretical prediction. Our results also help reconciliate the apparently contradicting evidence in the empirical literature on the impact of trade on unemployment.
Keywords: Search; Unemployment; Trade
JEL Codes: F10; F13; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| correlation between comparative advantage and labor market frictions (F16) | unemployment outcomes (J65) |
| unemployment rate in the home economy (J64) | sector-specific unemployment rates (J69) |
| trade liberalization (F13) | higher unemployment (J64) |
| trade liberalization (F13) | lower unemployment (J68) |
| comparative advantage in sectors with strong labor market frictions (F16) | higher unemployment (J64) |
| comparative advantage in sectors with weak labor market frictions (F16) | lower unemployment (J68) |