Factor Mobility

Factor market equilibrium and mobility (for example, labour)

O_HO_F = world total labour. Assume all labours are homogenous. Suppose initial allocation of labour is O_HL₁ for H and O_FL₂ for F (O_HL₁ + O_FL₁ = O_HO_F).

Given downward sloping MPPs (therefore, diminishing marginal return is assumed) for the two countries, WH = OHD < WF = OFB. H's labour will migrate to F for higher wages. H's labour (and MPPH ) and F's labour (and MPPF ). Migration will cease when MPPH = MPPF (WH = WF).

Results

Labour's welfare changes: W_H , W_F

F's surplus (which is return to capital) increases from IAB to IEG, therefore F's capitalists will be better off.

H's surplus decreases from HCD to HEF, therefore H's capitalists will be worse off.

World total production

Before migration: HCL₁O_H + IAL₁O_F

After migration: HEL₂O_H + IEL₂O_F

Therefore total production increases by AEC.

Stolper-Samuelson Theorem

Factor Growth and Trade

Basic Models

Copyright © 1997, 1998, 2001 Dr MoonJoong Tcha
(mtcha@ecel.uwa.edu.au)

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