Does globalization widen inequality or increase income risk? Globalization amplifies the effect of idiosyncratic relative productivity shocks. But wider markets reduce the effect of economy-wide supply shocks on world prices. Both forces are at work in the specific factors continuum model of this paper. Ex post equilibrium exhibits positive (negative) premia for export (import-competing) sector...

Stages of Diversification in a Neoclassical World Recent research has documented a U-shaped industrial concentration curve over an economy’s development path. How far can neoclassical trade theory take us in explaining this pattern? We estimate the production side of the Heckscher-Ohlin model using industry data on 44 developed and developing countries for the period 1976-2000. Decomposing the ...

This paper presents a specific factor model of a small open economy to show the factor price effect and welfare effect of offshoring. Different to ambiguous wage effect conclusions of offshoring under Heckscher-Ohlin framework, the conclusions of this paper is clear-cut. Offshoring will benefit specific factor (skilled labour and land), hurts some non-specific factor (unskilled labour), and enl...

The paper analyses the relationship between within-country income inequality and policies of domestic liberalization and external globalization. The models used to provide the rationale for such reforms—such as the Hecksher-Ohlin model—usually predict a decline in inequality. However, the evidence shows that inequality often rose with the introduction of such reforms. The paper tries to explain...

Hecksher-Ohlin model predicts that gains to trade should flow to abundant factors, which suggests that in developing countries, unskilled labor would benefit most from trade liberalization. The rising skill-premium in the US is often cited in support of standard trade theory. However, these predictions have been challenged by Cunat and Maffezzoli (2001) and Kremer and Maskin (2003). According t...

This paper examines the validity of the ̄ve fundamental theorems in the positive theory of international trade in a basic model of external economies of scale. It shows that some of these theorems are valid in more cases than the literature suggests. In particular, if global changes under the speci ̄ed adjustment mechanism are allowed, the Rybczynski and Stolper-Samuelson Theorems are always val...