The pure theory of international trade was originally based on the mobility of goods and international immobility of factors with full employment. The Ricardian and Heckscher-Ohlin (HO) models of comparative advantage explain the pattern of trade using two sector models of general equilibrium in which goods are perfectly mobile while factors are mobile only within a country. Building on the HO model, Stolper and Samuelson (1941) derived an important theorem regarding tariffs and return to factors and later Rybczynski (1957) proved its dual relating factor endowments and output levels. In two pioneering papers, Samuelson (1947,1948), established that under certain conditions, free goods mobility resulted in factor price equalization across countries. The real theory of trade consists of these five core theorems: the Ricardian; the HeckscherOhlin, the Stolper-Samuelson; the Rybczynski and the factor price equalization theorem.
KeywordsReal Exchange Rate Regional Income Free Trade Zone Illegal Migration Factor Price Equalization
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