TY - JOUR
T1 - The gains from international factor movements
AU - Grossman, Gene M.
N1 - Funding Information:
*I am grateful to Richard Brecher, Avinash Dixit, and especially Alasdair Smith and Lars Svensson for their helpful comments, and to the National Science Foundation for financial support under Grant No. SES 8207643. My thanks are also extended to the Foerder Institute for Economic Research for their linancial assistance in the typing of this paper, and to the Institute for International Economic Studies at the University of Stockholm, where I was a visitor when it was revised. ‘For a recent treatment, see Dixit and Norman (1980, pp. 71-80). They show that free trade (weakly) Pareto dominates autarky in a one-consumer economy with perfect competition and variable factor supplies, as well as in a many-consumer economy where lump-sum transfers or commodity taxes are available for redistribution. ‘Most of the existing literature on the welfare effects of factor trade considers only ‘small movements of one or more [actors, generally from an initial position of no trade in factors. See,
PY - 1984/8
Y1 - 1984/8
N2 - 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.
AB - 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.
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U2 - 10.1016/0022-1996(84)90006-0
DO - 10.1016/0022-1996(84)90006-0
M3 - Article
AN - SCOPUS:0342489639
SN - 0022-1996
VL - 17
SP - 73
EP - 83
JO - Journal of International Economics
JF - Journal of International Economics
IS - 1-2
ER -