| Substitution in Markusen’s classic trade and factor movement complementarity models (2006) | |||||||||||||
Abstract | |||||||||||||
| Two classic papers on the relationship between trade and factor movement are Mundell (1957) and Markusen (1983). 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. This paper generalizes Markusen's analysis by considering i) the elimination of barriers to factor movement under any protection level, and ii) a change in trade barriers under free factor movement. I show that substitution holds under high protection, complementarity holds under low protection, and either substitution or complementarity hold for large increases (reductions) of low (high) protection rates. | |||||||||||||
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