International Trade And Unemployment: Theory And Cross-National Evidence

In this paper, the authors present two alternative models of trade and unemployment, in which unemployment is generated through a search mechanism. The basic framework of the first model is Ricardian in that the only factor of production is labor and trade is based on relative technological differences. The second model has a Heckscher-Ohlin (H-O) framework with two factors of production, namely labor and capital that are intersectorally mobile. Using cross-country data on various measures of trade policy, unemployment and a variety of controls, the authors find strong evidence for the Ricardian prediction that unemployment and trade openness are negatively related (protection and unemployment are positively related).