The Timing of Trade Adjustment: Evidence From Financial and Labor Frictions
Year: 2026
Type: article
Abstract: ABSTRACT This paper examines how financial development and labor‐market rigidity in exporting countries shape the timing of trade adjustment following economic integration agreements (EIAs), and how the two interact. Using a piecewise linear trend specification, the analysis traces how export adjustment evolves around agreement entry and shows that these factor‐market conditions help explain heterogeneity across the extensive and intensive margins. Three findings emerge. First, stronger financial development supports anticipatory extensive‐margin expansion before implementation, shifting export‐market entry ahead of the agreement and smoothing the discrete entry shock. At the industry level, the implementation‐year entry effect concentrates in sectors with greater asset tangibility, consistent with a collateral channel through which finance helps cover the fixed costs of export‐market entry. Second, labor hiring rigidity delays adjustment rather than anticipating it, operating primarily along the intensive margin in industries with higher labor volatility, where disruption extends beyond implementation. Third, the two channels interact: stronger financial development partially offsets the adverse effects of labor‐market rigidity on extensive‐margin adjustment, with the timing of this complementarity varying systematically across agreement types. Together, the findings suggest that the gains from trade integration depend not only on liberalization itself, but also on domestic institutional complementarities that shape the timing and margin composition of export adjustment.
DOI: 10.1111/roie.70078
Author: Jae Wook Jung
Institution: Sogang University
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,350
Funder: Sogang University
Awards: G2469008486, G4189631478, G5432431229
OpenAlex ID: W7138889776