Working Paper: CEPR ID: DP766
Authors: Victor D. Norman; Anthony J. Venables
Abstract: We consider a Heckscher-Ohlin model in which goods and factors of production can be traded, but trade involves transactions costs. Goods trade alone will not equalize factor prices, so there is an incentive for trade in factors of production. Whether goods or factors are traded depends on endowments and transactions costs. We characterize equilibria in which there is no trade, there is goods trade only, there is factor trade only, and there is trade in both goods and factors. This generalizes the Heckscher-Ohlin model to explain not only the direction of trade, but also the prior question of how goods and factors are partitioned to tradables and non-tradables.
Keywords: international trade; factor mobility; Heckscher-Ohlin
JEL Codes: F1; F11; F20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Changes in transactions costs (D23) | Pattern of trade (F10) |
| Reduction in international migration costs (F22) | Transformation of labor-scarce economy into labor-exporting economy (F16) |
| Endowments and trade costs (F11) | Trade direction and traded goods/factors (F10) |