Commodity Trade and Factor Mobility: Comment
Abstract
In a recent paper in this Review, Melvyn Krauss presented an interesting case of factor mobility under assumption that two countries have an identical factor endowment but differ from each other in tastes. A pattern of factor movements required under this set of assumptions is shown to be determinate in contrast to basic indeterminacy involved in a situation that assumes differences in factor endowments but identical tastes in two countries. To prove his point that there is only one unique pattern of factor mobility, Krauss starts by drawing from origin of a twofactor endowment (capital and labor) diagram two rays representing the factor endowment ratios in two countries that correspond to production vectors . . . required for mirror image solution (p. 801) in such a manner that each ray symmetrically deviates from initial common factor endowment ratio line from origin. He then proves with help of a parallelogram exact amounts of labor and capital to be transferred between two countries. Intuitively we know that such factor endowment ratio rays must exist. Yet we are not in a position to tell exact locations of such rays unless we first know exact amounts of labor and capital to be moved between two countries. Although Krauss's arbitrary way of drawing such rays does not invalidate his proof, it seems more logical as a geometrical proof that we directly find exact amounts of two factors to be transferred in a manner shown below, since only after we have done so, can rays used by Krauss be derived. The initial common factor endowment box is shown by O,COXL in Figure 1. The equilibrium production point achieved under free trade is indicated by point P. Let us subtract amount of labor-intensive good Y which home country would export Rd
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