Does Trade Openness Foster Unemployment? Evidence from D-8 OIC Countries

Abstract

This study aims to analyse the effect of trade openness, wages, inflation, economic growth, and population toward unemployment in the D-8 Organization of Islamic Cooperation countries over the period, 1991 to 2020. The quantitative approach uses techniques analysis of panel data regression. The study result shows a significant simultaneous effect of trade openness, wages, inflation, economic growth, and population on unemployment of D-8 OIC member countries. While partially, trade openness has a significant positive effect on unemployment, wages, economic growth, and inflation have a significant negative relationship with unemployment. The population has a significant positive effect on unemployment. Overall, the result implies that each OIC member country should promote an effective and strategic plan to enhance the demand for labour and employment. Furthermore, professional courses and vocational training should be initiated to fulfil the growing demand for skilled labour.
https://doi.org/10.56529/mber.v1i1.28
PDF

References

Ali, S., Yusop, Z., Kaliappan, S. R., Chin, L., & Meo, M. S. (2021). Impact of trade openness, human capital, public expenditure and institutional performance on unemployment: evidence from OIC countries. International Journal of Manpower. https://doi.org/10.1108/IJM-10-2020-0488

Aloi, M., & Hoefele, A. (2019). Wage stickiness, offshoring and unemployment. Economics Letters, 177, 56-59. https://doi.org/10.1016/j.econlet.2019.01.025

Bean, C., & Pissarides, C. (1993). Unemployment, consumption and growth. European economic review, 37(4), 837-854.

Billi, R. M. (2020). Unemployment fluctuations and nominal GDP targeting. Economics Letters, 188. https://doi.org/10.1016/j.econlet.2020.108970

Card, D., & Krueger, A. B. (1995). Myth and Measurement: The New Economics of the Minimum Wage. Princeton University Press. https://doi.org/10.1002/(SICI)1099-1468(199605)17:3<339::AID-MDE774>3.0.CO;2-4

Carré, M., & Drouot, D. (2004). Pace versus type: The effect of economic growth on unemployment and wage patterns. Review of Economic Dynamics, 7(3), 737-757. https://doi.org/10.1016/j.red.2003.12.002

Chen, B. L., Hsu, M., & Lai, C. F. (2016). Relation between growth and unemployment in a model with labor-force participation and adverse labor institutions. Journal of Macroeconomics, 50, 273-292. https://doi.org/10.1016/j.jmacro.2016.10.004

Dutt, P., Mitra, D., & Ranjan, P. (2009). International trade and unemployment: Theory and cross-national evidence. Journal of International Economics, 78(1), 32-44. https://doi.org/10.1016/j.jinteco.2009.02.005

Egger, Hartmurt., & Kreickemeier, Udo. (2009). Firm Heterogeneity and The Labor Market Effects of Trade Liberization. International Economic Review. 50(1), 187-216.

Eriksson, C. (1997). Is There a Trade-Off between Employment and Growth? Oxford Economic Papers, 49(1), 77-88. http://www.jstor.org/stable/2663536

Faryna, O., Pham, T., Talavera, O., & Tsapin, A. (2021). Wage and Unemployment: Evidence from Online Job Vacancy Data. Journal of Comparative Economics. https://doi.org/10.1016/j.jce.2021.05.003

Faryna, O., Pham, T., Talavera, O., & Tsapin, A. (2022). Wage and unemployment: Evidence from online job vacancy data. Journal of Comparative Economics, 50(1), 52-70. https://doi.org/10.1016/j.jce.2021.05.003

Felbermayr, G., Prat, J., & Schmerer, H. J. (2011). Trade and unemployment: What do the data say? European Economic Review, 55(6), 741-758. https://doi.org/10.1016/j.euroecorev.2011.02.003

Fung, M. K. Y., & Zeng, J. (1997). Equity control of multinational firms in an economic growth model with urban unemployment. International Review of Economics & Finance, 6(3), 287-301.

Gavrel, F., Lebon, I., & Rebière, T. (2010). Wages, selectivity, and vacancies: Evaluating the short-term and long-term impact of the minimum wage on unemployment. Economic Modelling, 27(5), 1274-1281. https://doi.org/10.1016/j.econmod.2010.02.001

Gomis-Porqueras, P., Huangfu, S., & Sun, H. (2020). The role of search frictions in the long-run relationships between inflation, unemployment and capital. European Economic Review, 123. https://doi.org/10.1016/j.euroecorev.2020.103396

Hasan, R., Mitra, D., Ranjan, P., & Ahsan, R. N. (2012). Trade liberalization and unemployment: Theory and evidence from India. Journal of Development Economics, 97(2), 269-280. https://doi.org/10.1016/j.jdeveco.2011.04.002

Haug, A. A., & King, I. (2014). In the long run, US unemployment follows inflation like a faithful dog. Journal of Macroeconomics, 41, 42-52. https://doi.org/10.1016/j.jmacro.2014.04.003

Iwasaki, Y., Muto, I., & Shintani, M. (2021). Missing wage inflation? Estimating the natural rate of unemployment in a nonlinear DSGE model: Missing wage inflation? European Economic Review, 132. https://doi.org/10.1016/j.euroecorev.2020.103626

Milton Friedman, B., Alchian, A., Becker, G., Bronfenbrenner, M., Burns, A. F., Cagan, P., Friedman, D. D., Harris, L., Johnson, H. G., Jones, H., Jordan, J., Meiselman, D., Meltzer, A. H., Schultz, T. W., Schwartz, A. J., Stein, H., Stigler, G. J., & Tobin, J. (n.d.). THE ROLE OF MONETARY POLICY*.

Phillips, A. W. (n.d.). The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-19571.

Pinheiro, R., & Visschers, L. (2015). Unemployment risk and wage differentials. Journal of Economic Theory, 157, 397-424. https://doi.org/10.1016/j.jet.2015.01.019

Putnam, B. H., & Azzarello, S. (2015). Evolving dynamics of the relationship between US core inflation and unemployment. Review of Financial Economics, 25, 27-34. https://doi.org/10.1016/j.rfe.2015.02.002

Ranjan, P. (2012). Trade liberalization, unemployment, and inequality with endogenous job destruction. International Review of Economics and Finance, 23, 16-29. https://doi.org/10.1016/j.iref.2011.10.003

Rhee, H. J., & Song, J. (2020). Wage rigidities and unemployment fluctuations in a small open economy. Economic Modelling, 88, 244-262. https://doi.org/10.1016/j.econmod.2019.09.033

Sadikova, M., Faisal, F., & Resatoglu, N. G. (2017). Influence of energy use, foreign direct investment and population growth on unemployment for Russian Federation. Procedia Computer Science, 120, 706-711. https://doi.org/10.1016/j.procs.2017.11.299

Sadiku, M., Ibraimi, A., & Sadiku, L. (2015). Econometric Estimation of the Relationship between Unemployment Rate and Economic Growth of FYR of Macedonia. Procedia Economics and Finance, 19, 69-81. https://doi.org/10.1016/s2212-5671(15)00009-x

Safdari, H., Hosseiny, A., Vasheghani Farahani, S., & Jafari, G. R. (2016a). A picture for the coupling of unemployment and inflation. Physica A: Statistical Mechanics and Its Applications, 444, 744-750. https://doi.org/10.1016/j.physa.2015.10.072

Safdari, H., Hosseiny, A., Vasheghani Farahani, S., & Jafari, G. R. (2016b). A picture for the coupling of unemployment and inflation. Physica A: Statistical Mechanics and Its Applications, 444, 744-750.

Samuelson, P. A., & Solow, R. M. (1960) Analytical Aspects of Anti-Inflation Policy. American Economic Review, 50(2), 177-194.

Şener, F. (2001). Schumpeterian unemployment, trade and wages. Journal of International Economics, 54(1), 119-148. www.elsevier.nl/locate/econbaseq

Stepanok, I. (2018). A North-South model of trade with search unemployment. European Economic Review, 101, 546-566. https://doi.org/10.1016/j.euroecorev.2017.10.023

Stirati, A., & Meloni, W. P. (2021). Unemployment and the wage share: a long-run exploration for major mature economies. Structural Change and Economic Dynamics, 56, 330-352. https://doi.org/10.1016/j.strueco.2021.01.003

Authors who publish with this journal agree to the following terms:

  1. Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
  2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
  3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).

MBER have CC-BY-SA or an equivalent license as the optimal license for the publication, distribution, use, and reuse of scholarly work.

In developing strategy and setting priorities, MBER recognize that free access is better than priced access, libre access is better than free access, and libre under CC-BY-SA or the equivalent is better than libre under more restrictive open licenses. We should achieve what we can when we can. We should not delay achieving free in order to achieve libre, and we should not stop with free when we can achieve libre.

Creative Commons License

MBER is licensed under a Creative Commons Attribution 4.0 International License

You are free to:

  • Adapt remix, transform, and build upon the material for any purpose, even commercially.
  • The licensor cannot revoke these freedoms as long as you follow the license terms.