GLOBE

The Immobile Factor Model

by Steven Suranovic ©1997-2004

Trade 70-10 

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The immobile factors model is designed to highlight the effects of factor immobility between industries within a country when a country moves to free trade. The model used is the standard Ricardian model with one variation in its assumptions. Whereas in the Ricardian model, labor can move costlessly between industries, in this model we assume that the cost of moving factors is prohibitive. This implies that labor, the only factor, remains stuck in its original industry as the country moves from autarky to free trade.

The assumption of labor immobility allows us to assess the short-run impact of movements to free trade where the short run is defined as the period of time when all factors of production are incapable of moving between sectors. The main result of the model is that free trade will cause a redistribution of income such that some workers gain from trade while others lose from trade.


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International Trade Theory and Policy Lecture Notes: ©1997-2004 Steven M. Suranovic
Last Updated on 9/16/99