By Eun Kwan Choi; James Harrigan
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Additional resources for Handbook of international trade Vol 1
22) (with capital now the “mobile” factor), the paradoxical-sounding outcome in which foreign workers, producing their own national commodity (which has not risen in price), find their wages increasing by more than home workers (employed only in producing the good that has increased in price) must follow if home production is capital-intensive relative to that in the enclave. Another example raises the number of factors and commodities by one. It presupposes that there are two countries, each producing both commodities, and the price of the first commodity increases throughout the world.
Suppose, now, that in the home country output of the first commodity represents a significantly larger fraction of the national income than it does abroad. The consequence is a flow of the internationally-mobile factor specific to the industry that has gone up in price into the country that is the relatively unimportant producer. In this 5 ¥ 4 setting only one type of capital is internationally mobile. But suppose both types of capital can flow between countries although remaining specific to a certain kind of activity.
Second, consider the problem facing a multinational firm engaged in worldwide competition, albeit of an imperfectly competitive nature, when it has to decide on the country location of its productive activities. Even if such a firm makes profits, it is the cost comparisons between countries for various activities that become crucial, and with it a concern about differences in factor intensities between commodities and factor prices between countries. Worth emphasizing as well is the treatment of factor intensities accorded by the early literature on monopolistic competition with increasing returns.