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Trade with Labor Market Distortions and Heterogeneous Labor: Why Trade Can Hurt

In: WTO and World Trade

Author

Listed:
  • Kala Krishna

    (National Bureau of Economic Research
    The Pennsylvania State University)

  • Abhiroop Mukhopadhyay

    (The Pennsylvania State University)

  • Cemile Yavas

    (The Pennsylvania State University)

Abstract

This paper explains the differential impacts of trade on countries in terms of institutional differences which result in factor market distortions. We modify the Ricardian, Specific Factor and Hecksher Ohlin models of trade to capture these. Trade has both terms of trade effects and output effects. Both work to raise welfare in an undistorted economy. In a distorted economy, price effects work to improve welfare, while output effects work to reduce it. Large distorted countries are more likely to lose from trade as beneficial price effects are lower. In addition the greater the substitutability between goods, the more likely it is that welfare rises through trade.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Kala Krishna & Abhiroop Mukhopadhyay & Cemile Yavas, 2005. "Trade with Labor Market Distortions and Heterogeneous Labor: Why Trade Can Hurt," Contributions to Economics, in: Günter S. Heiduk & Kar-yiu Wong (ed.), WTO and World Trade, pages 65-83, Springer.
    • Handle: RePEc:spr:conchp:978-3-7908-1630-3_8
    DOI: 10.1007/3-7908-1630-2_8
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    References listed on IDEAS

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    Cited by:

    1. Richard B. Freeman, 2004. "Trade Wars: The Exaggerated Impact of Trade in Economic Debate," The World Economy, Wiley Blackwell, vol. 27(1), pages 1-23, January.
    2. Uttam Kumar Deb, 2007. "Agricultural Trade Protection: A Perspective from India," ARTNeT Policy Briefs 11, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    3. Etienne C^ome & Marie Cottrell & Patrice Gaubert, 2015. "Analysis of Professional Trajectories using Disconnected Self-Organizing Maps," Papers 1507.00578, arXiv.org.
    4. Youwen Zhang, 2011. "From Policy-driven Opening to Institutional Opening – A Discussion on Policy-imposed Distortion in China’s Economic Development," Chapters, in: Lilai Xu (ed.), China’s Economy in the Post-WTO Environment, chapter 10, Edward Elgar Publishing.
    5. Krishna, Kala & Yavas, Cemile, 2005. "When trade hurts: Consumption indivisibilities and labor market distortions," Journal of International Economics, Elsevier, vol. 67(2), pages 413-427, December.

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    More about this item

    Keywords

    Relative Supply; Fixed Wage; Effective Labor; Market Distortion; Production Possibility Frontier;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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