On the Heterogenous Effect of Trade on Unemployment

This paper tests a series of predictions about the possible relationship between trade and unemployment. Empirical results show that trade reduces unemployment in countries with comparative advantage in sectors with more efficient labour markets and leads to higher unemployment in countries with comparative advantage in sectors with less efficient labour markets. These results are obtained in a panel dataset of 107 countries covering the period 1995-2009. They further help reconcile the apparently contradicting evidence in the empirical literature and contrasting political views on the impact of trade on unemployment.