Effects of trade liberalization on the members of a trading bloc : a lumpy country analysis
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Date
1994-10-01
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Abstract
The paper models two country trading block as a lamprey country the countries Share identical constant returns of scale technologies but other difference between countries prevent them from producing all goods with the same techniques. The paper examiners case in which they differ exogenously in their factor factor endowments and in which factor endowment differences arise endogenously either because workers migrants seeking a higher level of amenities that is available in only one of the countries or because one of the countries provides a production subsidy to one of the industries identified as agriculture. The model is used to explore the effects of both trade liberalization which alerts domestic relative prices and a reduction in the agricultural subsidy. Results are derived for the effects of these policy changes on real factor price in the two countries and on the moment of Labor between the countries when it is allowed to move. Most of these effects depend critically on the initial patterns of specialization and bence on the initial allocation of factors across the countries
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trade liberalization, trading bloc