Register  |  Login  |  Inquiries  |  Sitemap |  
Advanced Search
The Journal of Economic Integration 2025 June;40(2) :291-314.
DOI: https://doi.org/10.11130/jei.2024056
Trade Induced Selection Effects: Factor Intensity Difference in Entry and Production Costs

Shivam Kapoor

Economic Research Unit, ISI, Kolkata, India
Corresponding Author: Shivam Kapoor ,Email: shivamkapoor15996@gmail.com
Copyright ©2025 The Journal of Economic Integration
ABSTRACT
This paper develops a two-factor model of trade in intermediate goods and final goods between countries differing in relative factor endowments with monopolistically competitive firms of heterogeneous productivity. Unlike previous studies, I show that even without trade cost selection effects are present and are guided by factor proportions. Free trade causes a lower wage-rental ratio and weaker selection in the capital abundant country while the opposite happens in the labor abundant country. Under free trade, in a departure from the Stolper-Samuelson result, the real reward to labor rises in the capital abundant country while the change in the real reward to labor is ambiguous for the labor abundant country. Further, the model predicts, for costly trade, a rise in the wage-rental ratio reallocates labor away from capital intensive intermediate goods sector and towards labor intensive final good sector, and vice-versa. Also, in a move to costly trade, if the wage-rental ratio rises then selection becomes stricter, and vice-versa. These results are confirmed by a numerical simulation of bilateral liberalization in the model.

JEL Classification
F11: Neoclassical Models of Trade
F12: Models of Trade with Imperfect Competition and Scale Economies
F23: Multinational Firms; International Business
Keywords: Firm Heterogeneity | Comparative Advantage | Hecksher-Ohlin
TOOLS
PDF Links  PDF Links
Full text via DOI  Full text via DOI
Download Citation  Download Citation
  Print
Share:      
METRICS
0
Crossref
0
Scopus
526
View
11
Download
Editorial Office
Center for Economic Integration, Sejong University, 209, Neungdong-Ro, Gwangjin-Gu,
Seoul, 05006, Korea
TEL : +82-2-3408-3338    FAX : +82-2-6935-2492   E-mail : jei@sejong.ac.kr, editorial.office@e-jei.org
Browse Articles |  Current Issue |  For Authors and Reviewers |  About
Copyright© by Center for Economic Integration.      Developed in M2PI