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Substitution in Markusen's classic trade and factor movement complementarity models

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  • Schiff, Maurice

Abstract

Mundell and Markusen each wrote classic papers on the relationship between trade and factor movement. Mundell showed that substitution holds in the Heckscher-Ohlin model. Markusen challenged the substitution result and showed in five different models that removing barriers to factor movement results in complementarity under free trade, identical factor endowments, and a change in any one of the other assumptions underlying the Heckscher-Ohlin model. The author generalizes Markusen's analysis by considering the liberalization of barriers to factor movement under any non-negative level of protection, and liberalizing trade barriers under factor mobility. He shows that (1) substitution holds at high protection levels, (2) complementarity holds at low protection levels, and (3) either substitution or complementarity hold under large tariff changes.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3974.

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Date of creation: 01 Aug 2006
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Handle: RePEc:wbk:wbrwps:3974

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Related research

Keywords: Free Trade; Trade Law; Economic Theory&Research; Trade Policy; International Trade and Trade Rules;

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References

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  1. Markusen, James R., 1983. "Factor movements and commodity trade as complements," Journal of International Economics, Elsevier, Elsevier, vol. 14(3-4), pages 341-356, May.
  2. James R. Markusen & Lars E.O. Svensson, 1983. "Trade in Goods and Factors with International Differences in Technology," NBER Working Papers 1101, National Bureau of Economic Research, Inc.
  3. Ramón López & Maurice Schiff, 1998. "Migration and the Skill composition of the Labor Force: The Impact of Trade Liberalization in LDCs," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 31(2), pages 318-336, May.
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Cited by:
  1. Pierre M. Picard & Tim Worrall, 2011. "Sustainable Migration Policies," The School of Economics Discussion Paper Series, Economics, The University of Manchester 1122, Economics, The University of Manchester.
  2. Maroula Khraiche, 2009. "Trade, Firm Structure, and Migration of Talent," Working papers, University of Connecticut, Department of Economics 2009-35, University of Connecticut, Department of Economics.

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