International Trade and Unemployment: A Quantitative Framework

78 Pages Posted: 5 Dec 2012

See all articles by Benedikt Heid

Benedikt Heid

University of Adelaide

Mario Larch

University of Bayreuth - Faculty of Law, Business and Economics; University of Bayreuth; CESifo; Ifo Institute for Economic Research; GEP at the University of Nottingham; Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Date Written: December 2014

Abstract

Quantifying the welfare effects of trade liberalization is a core issue in international trade. Existing frameworks assume perfect labor markets and therefore ignore the effects of aggregate employment changes for welfare. We develop a quantitative trade framework which explicitly models labor market frictions. To illustrate, we assess the effects of trade and labor market reforms for 28 OECD countries. Welfare effects of trade agreements are magnified when accounting for employment changes. While employment and welfare increase in most countries, some experience higher unemployment and lower welfare. Labor market reforms in one country have small positive spillover effects on trading partners.

Keywords: international trade, unemployment, trade costs, structural estimation, gravity equation

JEL Classification: F140, F160, F130

Suggested Citation

Heid, Benedikt and Larch, Mario, International Trade and Unemployment: A Quantitative Framework (December 2014). CESifo Working Paper Series No. 4013, Available at SSRN: https://ssrn.com/abstract=2184730 or http://dx.doi.org/10.2139/ssrn.2184730

Benedikt Heid

University of Adelaide ( email )

No 233 North Terrace, School of Commerce
Adelaide, South Australia 5005
Australia

Mario Larch (Contact Author)

University of Bayreuth - Faculty of Law, Business and Economics ( email )

Universitätsstraße 30
Bayreuth, 95447
Germany
0049 / (0) 921 - 55 6240 (Phone)

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Ifo Institute for Economic Research ( email )

Poschinger Str. 5
Munich, 01069
Germany

GEP at the University of Nottingham ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

9 rue Georges Pitard
Paris Cedex 15, F-75015
France

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