Intercountry Gaps in Increasing-Returns-To-Scale Technologies and the Choice Among International Economic Regimes

Abstract

In the modern world with its advanced means of communication and transportation, countries are economically tied through international commodity trade and international capital and labor movements. Although in some cases one of these international transactions is perfectly substitutable for another,¹ in general all of them supplementarily serve to increase the efficiency of world production by reallocating factors of production to yield higher productivity. Therefore, it would be rational for the world as a whole to try to remove barriers on these international transactions and to move toward freer trade in goods and factors of production. In reality, however, there is a difference in the countries’ efforts toward liberalization between trade in goods and capital and trade in labor force. This difference is especially prominent in advanced industrialized countries. Although they are trying to reduce barriers on commodity trade and international capital movement through global agreements such as the General Agreement on Tariffs and Trade and international institutions such as the International Monetary Fund, they continue to strictly restrict immigration of the labor force.