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Substitution in Markusen's classic trade and factor movement complementarity models

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  • Schiff, Maurice

Abstract

Mundell and Markusen each wrote classic papers on the relationship between trade and factor movement. Mundell showed that substitution holds in the Heckscher-Ohlin model. Markusen challenged the substitution result and showed in five different models that removing barriers to factor movement results in complementarity under free trade, identical factor endowments, and a change in any one of the other assumptions underlying the Heckscher-Ohlin model. The author generalizes Markusen's analysis by considering the liberalization of barriers to factor movement under any non-negative level of protection, and liberalizing trade barriers under factor mobility. He shows that (1) substitution holds at high protection levels, (2) complementarity holds at low protection levels, and (3) either substitution or complementarity hold under large tariff changes.

Suggested Citation

  • Schiff, Maurice, 2006. "Substitution in Markusen's classic trade and factor movement complementarity models," Policy Research Working Paper Series 3974, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3974
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    References listed on IDEAS

    as
    1. Ramón López & Maurice Schiff, 1998. "Migration and the Skill composition of the Labor Force: The Impact of Trade Liberalization in LDCs," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 318-336, May.
    2. James R. MARKUSEN, 2021. "Factor Movements And Commodity Trade As Complements," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 15, pages 325-340, World Scientific Publishing Co. Pte. Ltd..
    3. Markusen, James R & Svensson, Lars E O, 1985. "Trade in Goods and Factors with International Differences in Technology," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 175-192, February.
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    Cited by:

    1. Unal ARSLAN & Yildiz SAGLAM CELIKOZ & Arif Eser GUZEL, 2018. "Causal Relationship between Foreign Direct Investment and Export: The Case of Developing Economies of Asia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(4), pages 537-551, April.
    2. Pierre M. Picard & Tim Worrall, 2010. "Sustainable Migration Policies," DEM Discussion Paper Series 10-12, Department of Economics at the University of Luxembourg.
    3. Maroula Khraiche, 2009. "Trade, Firm Structure, and Migration of Talent," Working papers 2009-35, University of Connecticut, Department of Economics.
    4. Khraiche, Maroula, 2014. "Trade, capital adjustment and the migration of talent," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 24-40.

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    Keywords

    Free Trade; Trade Law; Economic Theory&Research; Trade Policy; International Trade and Trade Rules;
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