Goods versus Factors: When Borders Open, Who Moves?

Michael Michaely

The World Economy, 2003, vol. 26, issue 4, 533-553

Abstract: This paper raises the question when both goods and factors can move in an opening of two countries’ borders whether it is possible to say a priori which of the two would move and which moves faster as both move. The paper notes that this question should be answered in terms of the extent of the existing barriers whether natural or policy based and the ability to shift production activities in the two countries or regions. The issue is analysed taking into account the movement of goods and factors between the centres of activity in Israel and the West Bank and Gaza. The main finding of the analysis in this case is that following the opening of the borders, adjustment took place predominantly through the movement of factors, almost exclusively labour: and only to a very limited extent through the exchange of goods. This may be due to the short distances and prohibition of shifting residences. In steady state this is expected to be large and sustained compared to an increase and a decline of labour movement in steady state if residency were available..

Date: 2003
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