The gains from international factor movements

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Abstract

This paper studies the welfare gains from free and restricted international movement of factors in the presence of free and restricted trade in goods. In moving from an equilibrium with trade in goods and no factor movements to one with goods trade and free factor mobility, a sufficient condition for welfare improvement is that the sum of a 'terms-of-trade' effect and a 'volume-of-trade' effect be non-negative. The maintenance of optimal tariffs and export subsidies on goods in the cum-factor-movements equilibrium is not sufficient to ensure gains from free factor trade. Finally, some movement of factors is not necessarily better than none, in the sense that a prohibitive tax on factor trade may be called for, both in a second-best optimum, when a government is constrained to follow a sub-optimal policy with respect to goods trade, and in a first-best optimum, when trade taxes are also set optimally.

Original languageAmerican English
Pages (from-to)73-83
Number of pages11
JournalJournal of International Economics
Volume17
Issue number1-2
DOIs
StatePublished - Aug 1984

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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