Effects of International Trade on Domestic Employment: an Application of a Global Multiregional Input-Output Supermultiplier model

Abstract

The effects on domestic employment of international trade and the globalisation of supply chains are as politically controversial as they are empirically inconclusive. To estimate them we extend the global multiregional input-output framework by endogenising demand for both domestic and imported intermediates, private business investment and household non-durable consumption - or equivalently, we generalise the supermultiplier formula. The model accounts, in particular, for the employment consequences of economic integration and those channelled through integration. We estimate these foreign sector effects alongside those of domestic origin using a recursive hierarchical structural decomposition analysis and statistics from the World Input-Output Database and National Accounts that cover years 1995-2011. Focusing on Spain, Italy, France, Germany, the UK, the US, Japan and China we answer the following questions: To what extent did international linkages deriving from international trade affect domestic employment? Did domestic employment benefit from economic integration?