Factor Prices and International Trade: A Unifying Perspective

41 Pages Posted: 28 Mar 2011 Last revised: 11 Mar 2022

See all articles by Ariel T. Burstein

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics

Jonathan Vogel

UCLA; NBER

Date Written: March 2011

Abstract

How do trade liberalizations affect relative factor prices and to what extent do they cause factors to reallocate across sectors? We first present a general framework that nests a wide range of models that have been used to study the link between globalization and factor prices. Under some restrictions, changes in the "factor content of trade" are sufficient statistics for the impact of trade on relative factor prices. We then study the determination of the factor content of trade in a specific version of our general framework featuring imperfect competition, increasing returns to scale, and heterogeneous producers. We show how heterogeneous firms' decisions shape the factor content of trade, and, therefore, the impact of trade liberalization on relative factor prices and between-sector factor allocation.

Suggested Citation

Burstein, Ariel T. and Vogel, Jonathan, Factor Prices and International Trade: A Unifying Perspective (March 2011). NBER Working Paper No. w16904, Available at SSRN: https://ssrn.com/abstract=1795853

Ariel T. Burstein (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

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Jonathan Vogel

UCLA ( email )

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