Abstract
This paper develops a dynamic general equilibrium model of international trade by incorporating labor market friction into the traditional Heckscher–Ohlin framework. Mutual trade reform encourages the production of firms in the comparative advantage sectors (de-regulation effect) but discourages that in the comparative disadvantage sectors (de-protection effect). When search friction and intersectoral labor barrier are present, the de-protection effect is not canceled out by the de-regulation effect, and we have a U-shaped long-run equilibrium employment curve along the tariff rates. Our empirical analysis also indicates a humped U-shaped relationship between tariff and unemployment.
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