Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/35441
Authors: 
Felbermayr, Gabriel
Prat, Julien
Schmerer, Hans-Jörg
Year of Publication: 
2009
Series/Report no.: 
IZA discussion papers 4184
Abstract: 
This paper documents a robust empirical regularity: in the long-run, higher trade openness is causally associated to 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 deal with endogeneity concerns, whereas cross-sectional data make it possible to instrument openness by its geographical component. In both setups, we carefully purge the data from 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. The preferred specification suggests that a 10 percent increase in total trade openness reduces unemployment by about one percentage point. Moreover, we show that openness affects unemployment mainly through its effect on TFP and that labor market institutions do not appear to condition the effect of openness.
Subjects: 
International trade
real openness
unemployment
GMM models
IV estimation
JEL: 
F16
E24
J6
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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