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Trade Theory, Analytical Models and Development

Essays in Honour of Peter Lloyd, Volume I

Edited by Sisira Jayasuriya

Trade Theory, Analytical Models and Development, comprises 11 essays offering new contributions on the following topics: trade and wages; factor endowments, factor mobility and political economy of trade; optimality of tariffs; measurement of welfare; customs union theory; endogenous mergers and tariffs; intra-industry trade; state trading enterprises and trade liberalisation; general equilibrium effects of e-Commerce, and trade; economic growth with production and consumption externalities; and environmental pollution and resource degradation.
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Chapter 1: Real wages and trade: insights from extreme examples

Roy J. Ruffin and Ronald W. Jones


Roy J. Ruffin and Ronald W. Jones* The effect of international trade on wage rates within a country has been the object of much scrutiny in journal articles, conferences and the wider media. The classic theoretical observation dates back to the 1941 article by Wolfgang Stolper and Paul Samuelson wherein the effects of commercial policy or of more open trade on real wage rates were seen to depend only upon the factor intensity ranking of a nation’s import-competing product with its exportables. Their theorem presupposed that productive factors had the same high degree of ability to relocate from one industrial activity to another. However, labour is often thought of as different from other productive factors, in being more mobile between sectors compared with capital or natural resources, and modelling of such an asymmetry leads naturally to the specific-factors model (Jones, 1971; Samuelson, 1971). In this context a quarter century ago Ruffin and Jones (1977) argued that there was a presumption that international trade would lead to real wage gains for labour, regardless of the pattern of trade. James Melvin and Robert Waschik (2001) recently questioned this result; they provided a computergenerated example wherein labour would suffer real wage losses with any kind of international trade. In response, Jones and Ruffin (2004) probed more deeply into the properties of specific-factors models to emphasize that asymmetries between sectors in labour intensity as well as in the flexibility of technology were crucial in determining...

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