Trade shocks drive investment and job growth with lower adjustment costs.
Trade opportunities can lead to economic growth, but adjusting to new markets can be costly and slow. A study in Argentina shows that when it's easier for businesses to hire workers and invest in equipment, trade benefits are maximized. Lower adjustment costs mean more capital, jobs, higher wages, and increased output. Smaller trade shocks benefit the most from reduced frictions, with many firms not responding to trade changes when costs are high.