Discussion Paper Details

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Title: Trade in Unemployment

Author(s): Céline Carrère, Marco Fugazza, Marcelo Olarreaga and Frédéric Robert-Nicoud

Publication Date: March 2014

Keyword(s): search unemployment and trade

Programme Area(s): International Trade and Regional Economics

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.

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Bibliographic Reference

Carrère, C, Fugazza, M, Olarreaga, M and Robert-Nicoud, F. 2014. 'Trade in Unemployment'. London, Centre for Economic Policy Research.