Thanks go to two anonymous referees for their helpful comments. The usual caveat applies.
Marginal Intra-Industry Trade and Adjustment Costs: The Australian Experience*
Article first published online: 20 FEB 2012
© 2012 The Economic Society of Australia
Economic Papers: A journal of applied economics and policy
Volume 31, Issue 1, pages 123–131, March 2012
How to Cite
Thorpe, M. and Leitão, N. C. (2012), Marginal Intra-Industry Trade and Adjustment Costs: The Australian Experience. Economic Papers: A journal of applied economics and policy, 31: 123–131. doi: 10.1111/j.1759-3441.2011.00156.x
- Issue published online: 20 FEB 2012
- Article first published online: 20 FEB 2012
- marginal intra-industry trade;
- labour market adjustment;
- dynamic panel data
The objective of this research is to investigate labour market adjustment in Australian manufacturing industry over the period 1992–2000, a time of significant adjustment in the country’s trade pattern. Specifically, the focus is on the so-called smooth adjustment hypothesis, which posits that, compared with inter-industry trade, intra-industry trade (IIT) expansion is associated with relatively lower factor adjustment costs. A dynamic panel data approach (GMM-System) is employed. We find that there is a negative correlation between changes in employment and increased IIT. This result provides support for the smooth adjustment hypothesis. Given the rise in IIT as a proportion of Australia’s overall trade during the period under review, the resulting trade-related adjustment in labour markets is likely to have been less than otherwise expected.