Trade Openness and Unemployment in Transition Economies: A Dynamic Heterogeneous Panel Data Analysis

Abstract

Liberalization of foreign trade and foreign exchange regimes of the countries in transition from planned economies to liberal economies, which are called transition economies in the literature, constitutes one of the crucial pillars of the process. The effect of foreign trade liberalization process on the workforce markets, however, has been a matter of ongoing dispute in the literature. For this reason, the long-term relationship between trade openness and unemployment in 17 transition economies between years 1998-2014 is researched in this study, using dynamic heterogeneous panel data analysis methods. As a result of the econometrical analysis, it has been found that there is a significant relationship between trade openness and the rate of unemployment and that trade openness has a reducing effect on unemployment.