Inheritance, Search Friction and International Trade: A General Equilibrium Model

Mazumder, Debojyoti (2013): Inheritance, Search Friction and International Trade: A General Equilibrium Model.

Abstract

In a general equilibrium framework, an economy, with one non-traded final good and two traded intermediate goods, is modeled in this paper. It is shown that even if the economy consists of one frictionless labor market and a labor market with the search-friction, a status-conscious preference can yield unemployment in equilibrium. If such an economy opens up to trade then comparative advantage can be generated through the difference in the degree of the labor market imperfection even between two otherwise very similar countries. This setup rejects the possibility of complete specialization. Wage inequality persists within the country, for both home and foreign, in spite of free trade and, free trade does not guarantee the reduction of unemployment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Trade; Search Unemployment; Inheritance Distribution
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; F - International Economics > F1 - Trade > F10 - General; F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade; F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search

References

Banerjee, A., & Mullainathan, S. (2010). THE SHAPE OF TEMPTATION: IMPLICATIONS FOR THE ECONOMIC LIVES OF THE POOR. NBER WORKING PAPER SERIES, Working Paper 15973.

Basu, K. (1989). A THEORY OF ASSOCIATION: SOCIAL. Oxford Economic Papers, 653-671.

Cole, H. L., Mailath, G. J., & Postlewaite, A. (1992). Social Norms, Savings Behavior, and Growth. Journal of Political Economy, 1092-1125.

Davidson, C., & Matusz, S. (2004). An Overlapping-generations Model of Escape. Review of International Economics, 749-768.

Davidson, C., & Matusz, S. (2006). Long-run Lunacy, Short-run Sanity: a Simple Model. Review of International Economics, 261-276.

Davidson, C., Martin, L., & Steven, M. (1999). Trade and search generated unemployment. Journal of International Economics, 271-299.

Davidson, C., Matusz, S. J., & Shevchenko, A. (2008). Globalization and Firm Level Adjustment with Imperfect Labor Markets. Journal of International Economics, 295-309.

Dutt, P., Mitra, D., & Ranjan, P. (2009). International Trade and Unemployment: Theory and cross national evidence. Journal of International Economics, 32-44.

Goldberga, P. K., & Pavcnikb, N. (2003). The response of the informal sector to trade liberalization. Journal of development economics, 463-496.

GROSSMAN, G. M., & SHAPIRO, C. (1988). FOREIGN COUNTERFEITING OF STATUS GOODS. The QuarterlyJournal of Economics, 79-100.

Heid, B., Larch, M., & Riaño, A. (2013). The Rise of the Maquiladoras: A Mixed Blessing. Review of Development Economics, 252-267.

HELPMAN, E., & ITSKHOKI, O. (2010). Labour Market Rigidities, Trade and Unemployment. Review of Economic Studies, 1100-1137.

HELPMAN, E., ITSKHOKI, O., & REDDING, S. (2010). INEQUALITY AND UNEMPLOYMENT IN A GLOBAL ECONOMY. Econometrica, 1239-1283.

HOSIOS, A. J. (1990). On The Efficiency of Matching and Realated Models of Search Unemployment. Review of Economic Studies, 279-298.

Mitra, D., & Ranjan, P. (2010). Offshoring and unemployment: The role of search frictions labor mobility. Journal of International Economics, 219-229.

Petrongolo, B., & Pissarides, C. A. (2001). Looking into the Black Box: A Survey of the Matching Function. Journal of Economic Literature, 390-431.

Pissarides, C. A. (2000). Equilibrium Unemployment Theory. The MIT Press.

Vishwanat, T. (1989). Job Search, Stigma Effect, and Escape Rate from Unemployment. Journal of Labor Economics, 487-502