This thesis focuses on three issues. First, it investigates the impact of fluctuations in international trade competitiveness on employment in the UK manufacturing sector over the period 1999 to 2010. We find statistically significant effects of a shock to international trade competitiveness on the level of employment. We suggest that the adjustment process in employment mainly works through job creation. We also find that compared to large firms, small firms contribute more towards job creation than job destruction. Our results show that changes in GDP growth rate and average wages are significantly related to employment, suggesting that the UK labor market responds significantly to market forces. Finally, we find that the effect of changes in the real exchange rate on both job creation and job destruction differs for exporting and non-exporting firms.
Second, the thesis empirically examines the impact the financial dependence, specifically during the 2007-2009 financial crisis, on the UK exports using monthly data over the period January 2002 to September 2011. We find that the UK exports are highly sensitive to the fluctuations in the cost of capital. The UK tends to export relatively less in the sectors which depend more on external finance than the sectors which are less dependent of external finance. These effects became stronger during the 2007-2009 financial crisis. We also find that adverse credit conditions affect both the supply and demand sides of exports and play a significant role in determining the supply and demand for UK exports. We find that along with the financial conditions in the trading partners, the volume of GDP and capital labor ratios of the importing countries are the main factors in determining the demand for the UK exports, whereas the supply of the UK exports is driven by financial conditions, GDP and the capital-labor ratio of the UK.
The third issue examined in the thesis is the impact of the 4th and 5th extensions in European Union (EU) on the trade flows of member and non-member countries. Specifically, the thesis tests whether 4th and 5th extensions EU causes trade diversion or trade creation. Moreover, we test that whether the trade creation and trade diversion effects of these extensions are same across the extensions and across the new members joining in these two extensions. Applying the correctly specified fixed effect gravity model on the data of imports and exports of the EU countries spanning from 1988 to 2008, our results show that in most of commodity groups, the EU boosts trade among member countries at the cost of lowering the trade with non-member countries. However, the increase in trade with member countries is more than the decrease in the trade with non-member countries. Moreover, we found that trade creation and trade effects vary across the extensions in the EU, across the commodity groups and across the members joining the EU in 4th and 5th extensions of the EU.
