Working Paper

Creative Destruction and Unemployment in an Open Economy Model

Author

  • Ignat Stepanok
Publication Date

I develop a model of endogenous economic growth and search and matching frictions in the labor market. I study the effect of trade liberalization between two identical economies on unemployment. I solve for two versions of the growth model, the first one where trade liberalization has only a temporary effect on growth, a semi-endogenous growth model. In the second version trade liberalization has a permanent effect on growth, a fully endogenous growth model. I show that in both versions trade liberalization has a steady state effect on unemployment that is negative for countries with a relatively larger R&D sector and positive otherwise.

Info

JEL Classification
O41, J63, F16

Key Words

  • Creative destruction
  • trade liberalization
  • unemployment