Abstract
AbstractLabour immobility (high adjustment cost) has been regarded as a major obstacle to trade liberalization and it has been argued that higher labour mobility promotes trade liberalization. However, this is not the case when we take into account conflicts of interest between politicians and voters that are inevitable in representative democracy. I construct a simple two‐period model including both elections and sectoral adjustment. Then I show that the non‐monotonic relationship between labour mobility and the equilibrium degree of trade liberalization exists due to the principal–agent relationship. In representative democracy, higher labour mobility prevents trade liberalization in some cases.
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