International trade and the equilibrium rate of unemployment in a Heckscher-Ohlin world economy

• Main Author: HOON, Hian Teck
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 1994
• Subjects: Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/433; https://ink.library.smu.edu.sg/context/soe_research/article/1432/viewcontent/International_Trade_and_the_Equilibrium_Rate.pdf
• Institution: Singapore Management University

This paper develops a (stylized Asia-America) Heckscher-Ohlin world economy in which the equilibrium rate of unemployment is endogenous. We examine the impact of various economic shocks on unemployment in the global economy. Harrod-neutral or Hicks-neutral technical progress across all industries in Asia leads to a terms of trade improvement for America but raises America's unemployment rate. Introducing a third country such as the block of former socialist economies results in higher unemployment for both Asia and America. Protection in America lowers American equilibrium unemployment but raises Asia's unemployment.