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Trade & Factor Mobility

Dannerhäll, Alexander LU (2018) NEKP01 20181
Department of Economics
Abstract
This study considers the nexus between trade, productivity and misallocation. Drawing on the influential model by Melitz (2003) in which firm heterogeneity is exploited to derive aggregate productivity gains from trade liberalizations, the intermediating role of dismissal regulation in producing these gains are examined. The source of the post-liberalization increase in aggregate productivity is a selection effect whereby less efficient firms are forced to exit or relinquish market shares to the benefit of more efficient firms. To increase market shares and serve foreign export markets firms need to acquire productive resources, an activity that is crucially contingent on frictionless factor markets. This assumption has been largely... (More)
This study considers the nexus between trade, productivity and misallocation. Drawing on the influential model by Melitz (2003) in which firm heterogeneity is exploited to derive aggregate productivity gains from trade liberalizations, the intermediating role of dismissal regulation in producing these gains are examined. The source of the post-liberalization increase in aggregate productivity is a selection effect whereby less efficient firms are forced to exit or relinquish market shares to the benefit of more efficient firms. To increase market shares and serve foreign export markets firms need to acquire productive resources, an activity that is crucially contingent on frictionless factor markets. This assumption has been largely neglected in previous research despite its central role in the realization of the selection effect. This study represents a first tentative step at examining how disturbances to factor markets impact productivity in the wake of a trade liberalization. Using the EMU as a liberalization-shock, the effect of dismissal regulation will be studied in a fixed-effects panel data model on a sample of the EU from 1996 to 2016. The results indicate support both for positive productivity effects of trade but more importantly for the interaction between trade and dismissal regulation. These findings lay the groundwork for more rigorous theoretical treatment on imperfect factor markets, heterogeneous firms and trade gains. (Less)
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author
Dannerhäll, Alexander LU
supervisor
organization
alternative title
A study of the nexus between trade gains and labor market regulation
course
NEKP01 20181
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Firm Heterogeneity, Panel Data, Trade, Labor Market Regulation
language
English
id
8947123
date added to LUP
2018-07-03 13:37:08
date last changed
2018-07-03 13:37:08
@misc{8947123,
  abstract     = {This study considers the nexus between trade, productivity and misallocation. Drawing on the influential model by Melitz (2003) in which firm heterogeneity is exploited to derive aggregate productivity gains from trade liberalizations, the intermediating role of dismissal regulation in producing these gains are examined. The source of the post-liberalization increase in aggregate productivity is a selection effect whereby less efficient firms are forced to exit or relinquish market shares to the benefit of more efficient firms. To increase market shares and serve foreign export markets firms need to acquire productive resources, an activity that is crucially contingent on frictionless factor markets. This assumption has been largely neglected in previous research despite its central role in the realization of the selection effect. This study represents a first tentative step at examining how disturbances to factor markets impact productivity in the wake of a trade liberalization. Using the EMU as a liberalization-shock, the effect of dismissal regulation will be studied in a fixed-effects panel data model on a sample of the EU from 1996 to 2016. The results indicate support both for positive productivity effects of trade but more importantly for the interaction between trade and dismissal regulation. These findings lay the groundwork for more rigorous theoretical treatment on imperfect factor markets, heterogeneous firms and trade gains.},
  author       = {Dannerhäll, Alexander},
  keyword      = {Firm Heterogeneity,Panel Data,Trade,Labor Market Regulation},
  language     = {eng},
  note         = {Student Paper},
  title        = {Trade & Factor Mobility},
  year         = {2018},
}