This paper develops a two-country model of trade and factor mobility in which capital is sector-specific but internationally mobile. The model avoids the indeterminacy and propensity to specialize of Heckscher-Ohlin models and exhibits a rich variety of responses to exogenous shocks, including transfers, capital taxes, and tariffs. The results throw light on the relationship between goods and factor trade, reconciling the conflicting views of previous writers. It is argued that the model holds out the possibility of a new paradigm in international trade theory in which international factor movements play a central rather than a peripheral role.
Canadian Journal of Economics is edited by David Green
More articles in Canadian Journal of Economics from Canadian Economics Association Address: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4 Contact information at EDIRC. Series data maintained by Prof. Werner Antweiler ().