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Trade Liberalization And Compensation

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Author Info
Carl Davidson
Steven J. Matusz

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Abstract

Liberalization harms some groups while generating aggregate benefits. We consider various labor market policies that might be used to compensate those who lose from freer trade. Our goal is to find the policy that compensates each group of losers at the lowest cost to the economy. We argue that wage subsidies should be used to compensate those who bear the adjustment costs triggered by liberalization whereas employment subsidies should be used to compensate those who remain trapped in the previously protected sector. Our analysis indicates that the cost of compensation is low, provided that the right policy is used. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-2354.2006.00394.x
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Publisher Info
Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 47 (2006)
Issue (Month): 3 (08)
Pages: 723-747
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Handle: RePEc:ier:iecrev:v:47:y:2006:i:3:p:723-747

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Brander, James A. & Spencer, Barbara J., 1994. "Trade adjustment assistance : Welfare and incentive effects of payments to displaced workers," Journal of International Economics, Elsevier, vol. 36(3-4), pages 239-261, May. [Downloadable!] (restricted)
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  2. Brecher, Richard A. & Choudhri, Ehsan U., 1994. "Pareto gains from trade, reconsidered : Compensating for jobs lost," Journal of International Economics, Elsevier, vol. 36(3-4), pages 223-238, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bruno Decreuse & Paul Maarek, 2008. "FDI and the labor share in developing countries: A theory andsome evidence," Working Papers halshs-00333704_v1, HAL. [Downloadable!]
    Other versions:
  2. Chantal Dupasquier & Patrick N. Osakwe, 2006. "Trade Regimes, Liberalization and Macroeconomic Instability in Africa," SCAPE Policy Research Working Paper Series 0604, National University of Singapore, Department of Economics, SCAPE. [Downloadable!]
  3. Kox, Henk L.M. & Lejour, Arjan, 2006. "Dynamic effects of European services liberalisation: more to be gained," MPRA Paper 3751, University Library of Munich, Germany. [Downloadable!]
  4. Sandro Brusco & Hugo Hopenhayn, 2007. "Deregulation with consensus," Economic Theory, Springer, vol. 32(1), pages 223-250, July. [Downloadable!] (restricted)
  5. Spiros Bougheas & Raymond Riezman, 2005. "Trade and the Distribution of Human Capital," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Spiros Bougheas & Richard Kneller & Raymond Riezman, 2009. "Optimal Education Policies and Comparative Advantage," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  7. Lori Kletzer, 2003. "Trade-related Job Loss and Wage Insurance: A Synthetic Review," Santa Cruz Center for International Economics, Working Paper Series 1026, Center for International Economics, UC Santa Cruz. [Downloadable!]
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