Trade and Foreign Capital: Income Redistribution in Simulated Trade Models
The present paper compares quantitative impacts of a free trade "program" of 1% price changes across simulations of general equilibrium models of countries and aggregates of skilled labor. These simulations of factor proportions and specific factors models illustrate two quantitative properties of competitive models of production and trade. First, factor intensity has a much stronger influence than factor substitution on the pattern of income redistribution due to price changes and foreign capital. Second, price changes associated with trade have a much stronger impact than foreign capital.
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