lec07-eco101-10

lec07-eco101-10 - InternationalTrade Lecture7 c...

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Unformatted text preview: InternationalTrade Lecture7 c Marc-AndreasMuendler UniversityofCalifornia,SanDiego October14,2010 7.DistributionalConsequencesofTrade Econ101, c M.Muendler DistributionalEffectsofTrade • Tradecanhavesubstantialeffectsontheincomedistributionwithina tradingcountry.The reasons include: – Resourcescannotmovecostlesslyfromoneindustrytoanother – Industriesdifferinthefactorsofproductiontheydemand • Tradeliberalizationchangestherelativepricesoffinalgoods – Changesinrelativepricescanbeusedtoanalyzedistributional effects – Anequalproportionalchangeinallpriceshasnorealeffects 7.DistributionalConsequencesofTrade Econ101, c M.Muendler RelativeWagesinClassicTradeTheory • Inallclassictrademodels,wagesareequalacrossindustriesinboth countries(identicalfactorsearnidenticalincomes): w C = w W = w and w * C = w * W = w * . • Acrosscountries,wagesdifferintheRicardianmodel: w>w * becauselaborproductivityishigherinHomeinallsectors. Proof . Home: P C = a LC · w ,Foreign: P W = a * LW · w * ,and a LC a LW < P C P W . So, a LC a LW < a LC · w a * LW · w * and w w * > a * LW a LW > 1 (Homelaborismoreproductiveatwine). • Therearetypicallynoproductivitydifferencesintheotherclassic trademodels 7.DistributionalConsequencesofTrade Econ101, c M.Muendler DistributionEffectsinthe Heckscher-OhlinModel • Eachcountryrealizesoverallgainsfromtrade (improvedworld-widefactorallocation) • Thegainsareunevenlydistributed. Tradecanhavesubstantialdistributionaleffects – Therelativelyabundantfactorgainsunambiguouslyinrealterms (WorkersinHomegain) – Therelativelyscarcefactorlosesunambiguouslyinrealterms (LandownersinHomelose) 7.DistributionalConsequencesofTrade7....
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This note was uploaded on 05/01/2011 for the course ECON 101 taught by Professor Jacobson during the Spring '03 term at UCSD.

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lec07-eco101-10 - InternationalTrade Lecture7 c...

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