Pareto optimality of free trade in case of unemployment (revised version)

Gérard Fuchs
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Gérard Fuchs: CECO - Laboratoire d'économétrie de l'École polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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Abstract: A general equilibrium model of international trade is presented, with two zones, two goods and two factors of production, where, due to some rigidities, free trade leads to unemployment and thus to a situation worse than autarky from the point of vue of some zone and of some agents. However, if there is a possible mobility between the two factors, which are unskilled and skilled labour, theorems are proven showing that, given a dynamics of opening of the economy, if the speed of the mobility of labour is above some limits, or if the speed of opening of the economy is below some other limits, then free trade can be obtained through increasing incomes for each zone. If in addition there is a possibility of income redistribution between the agents, then similar theorems show that free trade can be obtained through Pareto improving situations.

Keywords: Commerce international; Pareto optimality; Chomage; International Trade; Unemployment (search for similar items in EconPapers)
Date: 2003
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