Employment allocations and unemployment: The role of international trade and migration frictions

Abstract Understanding the drivers of structural change has long been a central objective in development economics. While quantitative models that integrate multiple mechanisms into a unified framework offer valuable insights into their relative importance, this paper offers an alternative empirical perspective by highlighting and comparing the distinct impacts that different mechanisms have on other dimensions of labour market outcomes. Specifically, it examines two key forces behind labour reallocation out of agriculture: international trade and reductions in intersectoral allocation frictions. The paper shows, both theoretically and empirically, that these forces have opposite effects on unemployment. It further emphasizes that the reallocation of market shares toward more productive firms is a crucial mechanism behind the impact of trade.