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The Portuguese intra-industry tradeand the labor market adjustment costs: The SAH Again

Author

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  • Horácio C. Faustino
  • Nuno Carlos Leitão

Abstract

This paper provides an empirical test of the SAH (Smooth Adjustment Hypothesis) using data from Portugal. According to SAH, intra-industry trade leads to relatively lower adjustment costs in comparison to inter-industry trade. The paper tests the SAH by using a dynamic panel data analysis that takes into account lagged effects of changes in the MIIT (Marginal Intra-Industry Trade) index. The regressions use the absolute change in the total employment in a given industry as a proxy for trade adjustment costs. The main results imply that a higher MIIT leads to lower adjustment costs in the same year. More specifically, the coefficients of the MIIT index are negative and statistically significant in all regressions. These results provide support for the SAH. In addition, the coefficients of the lagged MIIT indicators (one or two period) are mostly positive but not significant throughout. These findings highlight the importance of lagged trade indicators in affecting labor reallocation outcomes and thus adjustment costs.

Suggested Citation

  • Horácio C. Faustino & Nuno Carlos Leitão, 2010. "The Portuguese intra-industry tradeand the labor market adjustment costs: The SAH Again," Working Papers Department of Economics 2010/08, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp82010
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    References listed on IDEAS

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    1. Imre Ferto, 2009. "Labour Market Adjustment and Intra‐Industry Trade: The Effects of Association on the Hungarian Food Industry," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(3), pages 668-681, September.
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    Cited by:

    1. Saeed Rasekhi & Saman Ghaderi, 2012. "Marginal intra-industry trade and adjustment costs: the case study of Iran’s manufacturing industries," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 4(1/2), pages 35-43.
    2. Tiago Pereira, 2016. "The effect of developing countries' competition on regional labour markets in Portugal," GEE Papers 0058, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Mar 2016.
    3. Varma, Poornima & Issar Akash, 2017. "Intra-Industry Trade and Labour Market Adjustment: Indian Manufacturing Sector," IIMA Working Papers WP 2017-04-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    4. Saeed Rasekhi & Saman Ghaderi, 2013. "Marginal Intra-Industry Trade and Employment Reallocation: The Case Study of Iran’s Manufacturing Industries," Journal of Industry, Competition and Trade, Springer, vol. 13(3), pages 417-429, September.
    5. Manuel Cabral & Joana Silva, 2006. "Intra-Industry Trade Expansion and Employment Reallocation between Sectors and Occupations," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(3), pages 496-520, October.

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    More about this item

    Keywords

    Adjustment costs; dynamic panel data; labor market; marginal intraindustry trade; smooth adjustment hypothesis; Portugal.;
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