The Impact of Trade on Unemployment

International trade has been one of the most fiercely debated economic issues. While standard trade theories state the benefits of free trade, several economist have raised questions about the validity of these theories and of the claimed benefits of trade. These debated have been intensified as we progressed in the era of globalization. In this thesis we focus on one of these debate topics that is we attempt to investigate the impact of trade on unemployment. In other words this study is an empirical investigation of how trade volume impacts the unemployment rate. The hypothesis of the paper is that, like the standard trade theory has suggested, the more is the trade, the bigger are the welfare and growth gains, and hence the lower is the unemployment. To this end, the study gathers data for 20 countries, 9 of which are from low income countries and 11 of which are from high income countries. Panel data regressions are carried for three different samples: low-income countries only, high-income countries only and high and low income countries together. In all regressions we find a supportive evidence that the trade impacts unemployment rate negatively. Controlling for GDP growth rates and accounting for granger-causality issues do not change the results. Keywords: Trade, unemployment.