Does Intra-industry Trade Explain a Lack of Trade-related Labor Market Dynamics?

Abstract

In the examinations undertaken thus far, we have not differentiated between types of trade flows. Ricardian models of international trade are largely based on a notion of inter-industry trade. The Heckscher-Ohlin Theorem, for example, predicts that capital-abundant countries will specialize in the production of capital-intensive products and then export such products to labor-abundant countries in exchange for labor-intensive products. Thus, the United States would be expected to trade more intensively with labor-abundant countries and the products being imported by the United States would be those that are not typically produced in the United States. The study of trade-induced job loss associated with intra-industry trade (IIT) requires us to focus on the Smooth Adjustment Hypothesis (SAH). The SAH states that labor-related adjustment costs are positively related to the likelihood that a worker switches industries; thus, such adjustment costs are expected to be lower if the trading pattern is characterized by a greater incidence of intra-industry trade as compared to inter-industry trade.