Revisiting Marginal Intra-Industry Trade and Portuguese Labour Market.

Abstract

This study aims to empirically test the smooth adjustment hypothesis (SAH) in the Portuguese labour market during 2000-2018, considering changes in employment, wage, productivity, consumption and the marginal intra-industry trade. So, following the literature, a greater marginal intra-industry trade intensity should reduce adverse shocks expressed in temporary inefficiencies such as undesirable job search costs and workers' relocation and retraining. According to state of the art, our research strategy considered a battery of diagnosis tests about the random generating process of variables included in a dynamic panel data model. The extensive work developed in this paper is a further step to introduce recent techniques such as the Method of Moments Quantile Regression and the cointegration panel models to infer long-term dynamics. Overall, the main point is that we find evidence confirming the hypothesis mentioned above, showing that mutual interactions reduce adverse shocks above mentioned. Thus, the study demonstrates that the marginal intra-industry trade promotes smooth adjustment in the Portuguese economy.