GEP Research Paper 03/01
The Role of Demand in the Adjustment of Employment to Trade
L. Fontagné and D. Mirza
Abstract
This article offers a new empirical explanation to the smooth adjustment of employment to openness at the industry level, observed in recent years in developing countries and some of the developed countries. In fact, we challenge the view through which trade is related to employment via a sole substitution effect. Using an oligopoly setting in international segmented markets, we show that each of both imports and exports, carry out an additional demand effect that is always positive on labor demand in a typical industry. We demonstrate that imports can be introduced into two alternative theoretical equations of labour demand that are easily testable and capable to discriminate between a (negative) substitution effect and a (positive) effect of demand. Empirical results seem to be robust to the existence of that 'double' effect for most of the industries in the OECD and developing countries.
Issued in February 2003.
This paper is available in PDF format.