Labor Market Adjustment and Intra-Industry Trade: Evidence from Turkish Manufacturing Sector
Gülçin Elif YÜCEL

Abstract
Smooth-adjustment hypothesis (SAH) is frequently tested for various country cases in which it argues that the labor market adjustment costs in terms of unemployed resources are lower with the expansion of intra-industry trade (IIT) than inter-industry trade. This paper aims to investigate and test empirically whether the SAH is valid or not for the case of Turkey. To this end, following panel data analysis and using two-digit International Standard Industry Classification (ISIC) Rev.3 data of Turkish Statistical Institute for the period between 2005 and 2008, this study analyzes the impact of trade and in particular of marginal intra-industry trade (MIIT) on the employment changes for the Turkish manufacturing industry by decomposing IIT into its vertical and horizontal components. The results show that the employment change is sensitive to the nature of IIT which is vertical or horizontal. Given the results and comparing them with other empirical studies, it can be difficult to say that the results do not support the SAH. Some variables strongly support the SAH while some of them give insignificant results.

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