Substitution in Markusen’s Classic Trade and Factor Movement Complementarity Models

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.

Bibliographic Details

Main Author:	Schiff, Maurice
Language:	English
Published:	World Bank, Washington, DC 2006-08
Subjects:	CAPITAL FLOWS, CAPITAL INCREASE, CHANGES IN TRADE, COMPARATIVE ADVANTAGE, CONSTANT RETURNS TO SCALE, DOMESTIC DISTORTIONS, EXPORT GOOD, EXPORT GOODS, EXPORT SECTOR, EXPORTS, FACTOR ENDOWMENTS, FACTOR MODEL, FACTOR PRICE, FREE TRADE, HIGH TRADE BARRIERS, IMPACT OF TRADE, IMPACT OF TRADE LIBERALIZATION, IMPORT SECTOR, IMPORTS, INTERNATIONAL ECONOMICS, INTERNATIONAL TRADE, LDCS, LOW TARIFF, M1, M2, M3, PATTERN OF TRADE, PERFECT COMPETITION, POLICY RESEARCH, PROTECTION RATES, TARIFF INCREASES, TARIFF RATE, TARIFF RATES, TARIFF REDUCTION, TERMS OF TRADE, TRADE BARRIER, TRADE BARRIERS, TRADE FLOWS, TRADE IN GOODS, TRADE LIBERALIZATION, TRADE POLICY, UNSKILLED LABOR, WAGE RATE,
Online Access:	http://documents.worldbank.org/curated/en/2006/08/6944324/substitution-markusens-classic-trade-factor-movement-complementarity-models https://hdl.handle.net/10986/8379
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