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Abstract
Empirical studies examining whether exposure to international trade creates or destroys jobs produce inconclusive findings. The present study seeks to examine the impact of international trade policies on unemployment for 10 Arab countries over the period of 1991–2012 using a theoretical framework incorporating trade and search-generated unemployment. In addition to the trade policy measurements, the present study controls for variables that represent macroeconomic policies; demographic change (population); governance, institutional quality and labour market regulation. Using different proxies for trade policies, the results of the Pooled Mean Group (PMG) show that trade liberalization policies have a positive impact on unemployment in the long run, but a negative impact in the short run. The finding supports contemporary calls to participate in international trade to facilitate job creation. However, further studies are required to identify the specific channels through which trade policies can affect unemployment in the Arab region.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. For more information concerning the demographic transition in Arab countries, see Winckler (Citation2002).
2. M&A refers to the purchase of existing assets, either through a cross-border merger resulting in two companies becoming a single entity; or through a cross-border acquisition in which foreign investors buy some or all of the shares or assets of a domestic company. Green field investment refers to the creation and development of new assets, such as factories, equipment, and offices.
3. We use tariff rate, applied, simple mean, all products (%) which Simple mean applied tariff is the weighted average of effectively applied rates for all products subject to tariffs calculated for all traded goods (see WBDI for more information).
4. For more detailed information concerning the theoretical model on trade liberalization and unemployment, see Felbermayr, Prat, and Schmerer (Citation2008), Dutt et al. (Citation2009), and Hasan et al. (Citation2012).
5. For an overview of the theoretical background that links international trade with labour market regulation, see Potrafke, Citation2013.
6. For recent examples, see Alberto, Spolaore, and Wacziarg (Citation2000), Elias and Peter (Citation2000), and Francisco and Antonio (Citation2004).
7. The KOF index is widely used by several studies to investigate the impact of globalization on different economic variables (see Bezemer & Jong-A-Pin, Citation2013; Potrafke, Citation2013; Gaston & Rajaguru, Citation2013).
8. The Washington Consensus advocates free trade; floating exchange rates; free markets; and macroeconomic stability.
9. Algeria, Lebanon, Libya, Iraq, Sudan and Yemen were classified as negotiating accession until 2007.
10. Some studies apply PMG estimator without testing homogeneity condition, therefore, their findings are not very convincing (see Damette and Seghir (Citation2013).
11. Some studies preform PMG even without checking the unit root problem (see Smargandi et al., Citation2015).
12. For the robustness, we selects the optimal lag using Schwarz Bayesian Criterion (SBC) and again the SBC suggest ARDL of 3,1,1,1,1,1,1 is optimal lag length.