FIW-wiiw-Seminar in International Economics
Regular lecture series on current issues in international economics.
The seminar is part of the activities of FIW, the Centre of Competence in International Economics.Series Details
Thursday, 25 November 2010, 4:00 pm
This paper documents a robust empirical regularity: in the long run, higher trade openness is associated with a lower structural rate of unemployment. We establish this fact using (i) panel data from 20 OECD countries, (ii) cross-sectional data on a larger set of countries. The time structure of the panel data allows us to control for unobserved heterogeneity, whereas cross-sectional data make it possible to instrument openness by its geographical component. In both setups, we purge the data from business cycle effects, include a host of institutional and geographical variables, and control for within-country trade. Our main finding is robust to various definitions of unemployment rates and openness measures. Our preferred specification suggests that a 10 per cent increase in total trade openness reduces aggregate unemployment by about three quarters of one percentage point.