Trade and unemployment: What do the data say?

Felbermayr, Gabriel; Prat, Julien and Schmerer, Hans-Jörg (2011): Trade and unemployment: What do the data say? In: European Economic Review, Vol. 55, No. 6: pp. 741-758

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.

• Item Type: Journal article
• Faculties: Economics; Economics > Chairs > CESifo-Professorship for International Trade
• Subjects: 300 Social sciences > 330 Economics
• Language: English