国际经济学Chapter 3

CHAPTER 3

Specific Factors and Income Distribution

* The failures of the Ricardian model

·A n extreme degree of specialization.

·W ithout effects on the income distribution.

( because it supposes labor is the only factor )

* There are two main reasons why international trade has strong effects on the distribution of income.

·S hort-term: specific factor, chapter3.

·L ong-term: relative abundance and relative intensity, chapter4.

(resource endowment theory or factor proportions theory ). * What is a specific factor?

Specific factor: --- can be used only in the particular sector. Mobile factor: --- can move between sectors.

·Think of factor specificity as a matter of time.

·Labor is less specific than most kinds of capital.

§1. The Specific Factors Model

1.Assumptions of the model : 2×3×

2.

·America and Japan;

·Labor (L)、Capital (K)、Terrain (T) ;

mobile factor specific factor

Q M=Q M(K,L M)、Q F=Q F(T,L F)、L=L M+L F

·Manufacture and Food.

2.Production possibilities

·Production of manufactures and food is determined by the allocation of labor.

Figure 3-3

·Because of diminishing returns, PP is a bowed-out curve instead of a straight line.

·The slope of PP, which measures the opportunity cost of manufacture in terms of food is =MPL F/MPL M.

dQ F/dQ M=(dQ F/dL)/(dQ M/dL)=－MPL F /MPL M=－1/MPL M* MPL F;

(MPL F↑/ MPL M↓)↑

3.Prices, wages, and labor allocation

·The demand for labor: MPL M*P M=W M , MPL F*P F=W F ·The allocation of labor: W M=W F , L=L M+L F

Figure3—4

、P F L M、L F Q M、Q F

P

·The production of specific factor model

MPL M*P M=MPL F*P F MPL F/MPL M=P M/P F

(opportunity cost=relative price)

Figure 3-5

4.The distribution of income within the manufacturing sector

Figure 3-2

total income: Q M=∫L

MPL M*dL M

wages: (W/P M)*L M

income of capitalists: ∫L MPL M*dL M (W/P M)*L M

·What happens to the allocation of labor and the distribution of income when P M and P F change? ( Figure3-6. 3-7. 3-8 )

①Notice that any price change can be broken into two parts : an equal proportional change in P M and P F , and a change in only one price.

Eg: P M↑M↑10% + P M↑7%

P F↑P F↑10%

② A equal proportional change in price have no real effects on the real wage, real income of capital owner and land owner.

Figure 3-6

③ A change in relative price

Figure 3-7

·Wage rate rise less than the increase in P M.

·Labor shifts from the food sector to the manufacturing sector and

Q M rises while Q F falls.

Figure 3-8 P M/P F↑

5. Relative prices and the distribution of income

① A rise in P M benefits the owners of capital , hurts the owner of

land.

Figure 3A-3

W/ P M↓, income of capitalists in term of P M rises (the shadow), income of capitalists in term of P M、P F rises.

Figure 3A-4

②Because W/P M drops and W/P F rises, the real wage of the workers

is uncertain. It depends on their consumptions structure.

§2. International Trade in the Specific Factors Model

·For trade to take place, the two countries must differ in P M/ P F. If RD is the same, RS is the source of trade ; if technologies is also the same , differences in resources can affect RS.

Figure 3-9

1.Resources and relative supply

An increase in the capital stock (capital per worker) raises the marginal product of labor in manufactures for any given level of

K↑MPL M M↑Q F↓,RS shift to the right.

Figure 3-10

Correspondingly, T MPL F Q M↓Q F↑, RS shift to the left.

Suppose L J=L A , K J>K A, T J

or(K/L)J>(K/L)A,(T/L)J<(T/L)A).

Then the situation will look like that in Figure 3-11.

Figure 3-11

2.The pattern of trade

·The amount of the economy can afford to import is limited by the amount it exports.

·Budget constraint: D F－Q F =( P M/ P F)×(Q M－D M)

import export

Figure3-12

two fectures:①slope = －P M/P F

②tangent PF at the production point after trade. ·The budget constraint and the trading equilibrium.

Figure 3-13

Japan: ( P M/P F)↑Q M↑Q F↓, D M↓D F↑,

Figure 3-13 continued

American: ( P M/ P F)↑Q M↓Q F↑, D M↑D F↓,

§3. Income Distribution and the Gains from Trade

1.Income distribution: who gains and who loses from international trade?

·Trade benefits the factor that is specific to the export sector of each country but hurts the factor to the import-competing sectors, with ambiguous effects on mobile factors.

2.The gains from trade.

Does trade make each country better off?

Is trade potentially a source of gain to everyone?

Figure 3-14

①The pretrade production and consumption point is shown as

point 2.

②Part of the budget constraint (AB) represents situations in which

the economy consumes more of both manufacture and food

than it could in the absence of trade (point2).

③It is possible in principle for a country’s government to use

taxes and subsidies to redistribute income to give each

individual more of both goods.

·The fundamental reason why trade potentially benefits a country is that it expands the economy’s choices. This expansion of choice means that it is always possible to redistribute income in such a way that everyone gains from trade.

§4. The Political Economy of Trade: A Preliminary View There are two ways to look at trade policy:

(1) (Normative analysis) Given its objectives, what should the

government do? What is the optimal trade policy?

(2) (Positive analysis) What are the governments likely to do in

practice?

1.Optimal trade policy

·Economists: to maximize the national welfare, free international trade is the optimal policy.

·Three main reasons why economists do not regard the income distribution effects of trade as a good reason to limit trade (P57).

2.Income distribution and trade politics

·An example : an import quota : U.S. sugar (P200).

·Problems of collective action (P 231).

·Typically, those who lose from trade in any particular product are a much more concentrated, informed, and organized group than those who gain.

·The formulation of trade policy: A kind of political process. Special box: Specific factors and the beginning of trade theory.