An article co-authored by the School of Economics’ latest recruit Benedikt Heid has just been published in the leading economics journal, the Journal of International Economics. The article estimates the gains to countries from trade liberalisation when employment effects are explicitly allowed for. For example, the article estimates that the US-Australia Free Trade Agreement (FTA) improved the economic welfare of Australia by 6.3% after taking account of employment effects (but by less than 6% when employment effects are ignored). Australia’s unemployment rate was estimated to be 0.4 percentage points lower as a result of the FTA, because it reduced labour market frictions and hence permanently lowered the level of frictional unemployment. This article refutes the claims that are often made that FTAs destroy jobs. They actually create them!
Benedikt Heid will take up his position in the School of Economics on September 1, 2016.