Chapter

Theoretical Framework

Adrian Wood

in North-South Trade, Employment and Inequality

Published in print July 1995 | ISBN: 9780198290155
Published online November 2003 | e-ISBN: 9780191597015 | DOI: http://dx.doi.org/10.1093/0198290152.003.0002

Series: IDS Development Studies

 Theoretical Framework

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The labour market effects of North–South trade in manufactures are analysed in a simple Heckscher–Ohlin (H–O) model, with North and South as the two countries, and skilled and unskilled labour as the two factors. Land is omitted from the model for simplicity, but capital is deliberately excluded because of its mobility. The assumptions of H–O theory about technology are defended. Trade causes convergence of Northern and Southern skilled–unskilled wage ratios, because labour supply is imperfectly elastic. Rigid wage differentials may cause the effect in the North to emerge as a rise in the equilibrium rate of unemployment.

Keywords: capital; differentials; labour market; mobility; supply; technology; trade; unemployment; wage

Chapter.  16011 words. 

Subjects: International Economics

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