International trade and the interaction of labour market frictions and endogenous firms exit: An examination of labour productivity and trade dynamics

How do the interactions between non-trading firms and labour market frictions impact the domestic and international transmission of macroeconomic shocks? In this paper we explore the impact of these interactions on labour productivity and unemployment, in a model with endogenous fluctuations in the entry and exit of non-trading firms into and out of the domestic market and labour market frictions. We find that in such a model, these interactions generate larger fluctuations in the persistence of labour productivity than models with only endogenous entry and exit. Our model also offers a framework in which we can examine the drivers of the wide variation in empirically calculated figures for the persistence of productivity