The Asian Recession and Northern Labour Markets

Abstract

One of the real effects of the recession in East and Southeast Asia has been a contraction in domestic demand that exceeds the corresponding contraction in output. The volume of Asian net exports of manufacturers to the north has therefore risen. This "trade composition" effect disadvantages comparatively labour intensive northern manufacturing and hence northern workers. There is, however, also a substantial "capital account" effect that has raised investment in the north and thereby aggregate demand. This paper examines the magnitudes of these two effects in a broader analysis of the real impacts of the Asian recession that is grounded in a global general equilibrium framework. Northern workers are found to be net beneficiaries in the short and medium run. Show more