Trade and unemployment

Abstract

"This paper documents a robust empirical regularity: in the long-run, higher trade openness is associated with a lower structural rate of unemployment. We establish this fact using: (i) panel data from 20 OECD countries, (ii) cross-sectional data on a larger set of countries. The time structure of the panel data allows us to control for unobserved heterogeneity, whereas cross-sectional data make it possible to instrument openness by its geographical component. In both setups, we purge the data of business cycle effects, include a host of institutional and geographical variables, and control for within-country trade. Our main finding is robust to various definitions of unemployment rates and openness measures. Our benchmark specification suggests that a 10 percentage point increase in total trade openness reduces aggregate unemployment by about three quarters of one percentage point." (Author's abstract, IAB-Doku) ((en))

Cite article

Felbermayr, G., Prat, J. & Schmerer, H. (2011): Trade and unemployment. What do the data say? In: European Economic Review, Vol. 55, No. 6, p. 741-758. DOI:10.1016/j.euroecorev.2011.02.003