Factor Immobility, Unemployment, Wages, Prices,

Transcript:Factor Immobility, Unemployment, Wages, Prices,:
Factor Immobility, Unemployment, Wages, Prices, and International Trade: Challenges to the Role of Trade in the H-O Framework Sherman Robinson IFPRI FAO worksop: “Relationship Between Trade and Food Security” Rome, March 2015 Benefits of International Trade Theory of comparative advantage Necessary and sufficient conditions to generate trade David Ricardo Heckscher-Ohlin-Samuelson (HOS) Major theorems: Trade and Wages Stolper-Samuelson Rybczynski Factor Price Equalization (Samuelson) 2 Theory of Comparative Advantage Countries trade because they are “different” Technology (Ricardo) and factor endowments (HOS) David Ricardo: Theory of Comparative Advantage Countries differ only in technology: different relative productivity of factors leads to trade “Absolute” productivity differences do not affect trade HOS: general equilibrium model Different relative factor endowments leads to trade 3 Gains from Trade In moving from autarky, all countries gain: Mutually beneficial exchange The gain arises from being able to consume “off” the PPF—not constrained by production alone Not everyone gains: Producers and factors: some gain, some lose Consumers gain: their effective real income rises, and they change consumption patterns 4 Trade Fallacies Countries lose from trade if they are less produc-tive in all sectors—no “absolute” advantage Not true. Comparative, not absolute, advantage determines gains from trade Labor (“jobs”) in high wage countries will be seriously damaged by trade with low-wage countries (Perot-Choate on NAFTA) Trade effects on wages are weak. But labor will be reallocated across sectors as a result of trade. 5 6 World Prices and Wages Stolper-Samuelson Theorem: Trade matters a lot Relative factor prices are determined solely by relative goods prices Changes in world commodity prices should generate large changes in domestic factor prices: magnification effect Trade policy that affects links between world prices and domestic prices (e.g., tariffs) will have strong effects on wages Trade policy matters a lot Factor Endowments and Wages Rybczynski Theorem Changes in relative factor supplies affect structure of production and trade, but not wages Magnification effect: changes in structure of production are larger than changes in relative factor supplies No role for labor economists and partial equilibrium analysis of labor markets. Wages are determined by general equilibrium trade effects and world prices, not factor endowments. 7 8 Labor Economists: Partial Equilibrium, Factor Content Analysis Partial equilibrium models: wages determined in the labor market Supply of labor: endowments, skills, education, etc. Demand for labor: technology, demand, trade Unskilled-labor-intensive imports displace unskilled-labor-intensive domestic production Factor content of net trade Worsening of U.S. trade deficit contributes