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Pareto optimality of free trade in case of unemployment (revised version)

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  • Gérard Fuchs

    (CECO - Laboratoire d'économétrie de l'École polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)

Abstract

A general equilibrium model of international trade is presented, with two zones, two goods and two factors of production, where, due to some rigidities, free trade leads to unemployment and thus to a situation worse than autarky from the point of vue of some zone and of some agents. However, if there is a possible mobility between the two factors, which are unskilled and skilled labour, theorems are proven showing that, given a dynamics of opening of the economy, if the speed of the mobility of labour is above some limits, or if the speed of opening of the economy is below some other limits, then free trade can be obtained through increasing incomes for each zone. If in addition there is a possibility of income redistribution between the agents, then similar theorems show that free trade can be obtained through Pareto improving situations.

Suggested Citation

  • Gérard Fuchs, 2003. "Pareto optimality of free trade in case of unemployment (revised version)," Working Papers hal-00242957, HAL.
    • Handle: RePEc:hal:wpaper:hal-00242957
    Note: View the original document on HAL open archive server: https://hal.science/hal-00242957
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    References listed on IDEAS

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    1. repec:adr:anecst:y:1997:i:47:p:12 is not listed on IDEAS
    2. Gérard Fuchs, 1997. "Democratic Acceptability of Free Trade: A Dynamic Approach," Annals of Economics and Statistics, GENES, issue 47, pages 245-269.
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