The Immobile Factors Model - Assumptions
by Steven Suranovic ©1997-2004
The immobile factors model assumptions are identical to the Ricardian model assumptions with
one exception. In this model we assume that LC and LW are exogenous. This means that there is
a fixed supply of cheese workers and wine workers. Cheese workers know how to make cheese
but cannot be used productively in the wine industry. Wine workers cannot be used productively
in the cheese industry.
This differs from the Ricardian model which assumed that labor was freely mobile across industries. In that model a cheese worker moved to the wine industry would be immediately as productive as a longtime wine worker.
Neither assumption, free and costless mobility or complete immobility, are entirely realistic. Instead they represent two extreme situations. The Ricardian assumption can be interpreted as a long run scenario. Given enough time all factors can be moved and be productive in other industries. The immobile factor assumption represents an extreme short run scenario. In the very short run it is difficult for any factor to be moved and be productive in another industry. By understanding the effects of these two extremes, we can better understand what effects to expect in the real world, characterized by incomplete and variable factor mobility.
Below is a list of the standard assumptions in the immobile factor model.
International Trade Theory and Policy Lecture Notes: ©1997-2004 Steven M. Suranovic