Working Paper: NBER ID: w10959
Authors: Franziska Ohnsonge; Daniel Trefler
Abstract: The two models of international trade with developed factor markets -- Heckscher-Ohlin and Specific Factors -- both suffer significant defects. For example, their predictions about the patterns of domestic production and international trade are for the most part either indeterminate or uselessly complex. The problem with these models is that the supply of factors to an industry is either perfectly elastic or perfectly inelastic. Using a model in which heterogeneous workers sort across industries we eliminate this problem. The result is a multi-good model with sharp predictions about (1) the domestic pattern of production, (2) North-North and North-South trade, (3) the demand for protection, (4) the determinants of domestic income distribution, and (5) the effect of trade on economic development.
Keywords: No keywords provided
JEL Codes: F11; F13; F16; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Heterogeneous workers (J29) | upward-sloping industry supply functions (L11) |
| Partial mobility among workers (J62) | domestic production patterns (L23) |
| Partial mobility among workers (J62) | international trade outcomes (F10) |
| Worker sorting based on skills (J24) | distinct production patterns (D20) |
| distinct production patterns (D20) | trade dynamics (F14) |
| Characteristics of worker sorting (J29) | demand for protection (F52) |
| Characteristics of worker sorting (J29) | income distribution (D31) |
| Differences in worker skills (J24) | variations in comparative advantage (F11) |