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Marginal Intra‐Industry Trade and Adjustment Costs: The Australian Experience *
Author(s) -
Thorpe Michael,
Leitão Nuno Carlos
Publication year - 2012
Publication title -
economic papers: a journal of applied economics and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.245
H-Index - 19
eISSN - 1759-3441
pISSN - 0812-0439
DOI - 10.1111/j.1759-3441.2011.00156.x
Subject(s) - economics , intra industry trade , panel data , manufacturing , trade barrier , international economics , econometrics , business , marketing
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.