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Goods versus Factors: When Borders Open, Who Moves?


  • Michael Michaely

    (Hebrew University of Jerusalem)


This paper raises the question when both goods and factors can move in an opening of two countries' borders whether it is possible to say a priori which of the two would move and which moves faster as both move. The paper notes that this question should be answered in terms of the extent of the existing barriers whether natural or policy based and the ability to shift production activities in the two countries or regions. The issue is analysed taking into account the movement of goods and factors between the centres of activity in Israel and the West Bank and Gaza. The main finding of the analysis in this case is that following the opening of the borders, adjustment took place predominantly through the movement of factors, almost exclusively labour: and only to a very limited extent through the exchange of goods. This may be due to the short distances and prohibition of shifting residences. In steady state this is expected to be large and sustained compared to an increase and a decline of labour movement in steady state if residency were available.. Copyright © Blackwell Publishing Ltd 2003.

Suggested Citation

  • Michael Michaely, 2003. "Goods versus Factors: When Borders Open, Who Moves?," The World Economy, Wiley Blackwell, vol. 26(4), pages 533-553, April.
  • Handle: RePEc:bla:worlde:v:26:y:2003:i:4:p:533-553

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    References listed on IDEAS

    1. Glick, Reuven & Rogoff, Kenneth, 1995. "Global versus country-specific productivity shocks and the current account," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 159-192, February.
    2. Tesar, Linda L., 1991. "Savings, investment and international capital flows," Journal of International Economics, Elsevier, vol. 31(1-2), pages 55-78, August.
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    4. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    5. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
    6. Aart Kraay & Jaume Ventura, 2000. "Current Accounts in Debtor and Creditor Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1137-1166.
    7. Kraay, Aart & Ventura, Jaume, 2002. "Current Accounts in the Long and Short Run," CEPR Discussion Papers 3440, C.E.P.R. Discussion Papers.
    8. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
    9. Aart Kraay & Norman Loayza & Luis Servén & Jaume Ventura, 2005. "Country Portfolios," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 914-945, June.
    10. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "The intertemporal approach to the current account," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 34, pages 1731-1799 Elsevier.
    11. Loayza, Norman & Schmidt-Hebbel, Klaus & Serven, Luis, 2000. "What drives private saving around the world?," Policy Research Working Paper Series 2309, The World Bank.
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