Title

How an export boom affects unemployment

Date of this Version

1-1-2013

Document Type

Journal Article

Publication Details

Citation only

Gaston, N., & Rajaguru, G.(2013). How an export boom affects unemployment. Economic Modelling, 30, 343-355.

Access the journal

2013 HERDC submission. FoR code: 140211;140302

ISSN

0264-9993

Abstract

Does trade affect the equilibrium rate of unemployment? To answer this question, we propose a small open economy model that incorporates realistic features of labour markets. The model predicts that a sustained improvement in the terms of trade lowers unemployment. We test this prediction for the case of Australia, an economy that is subject to large terms of trade movements. We use a novel technique to estimate the structural model based on a combination of traditional econometric procedures and the calibration of time-varying parameters. Both reduced form and the structural estimates reveal strong evidence that higher export prices, capital accumulation in tradeable goods industries and lower unemployment benefits reduce the equilibrium unemployment rate.

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This document has been peer reviewed.