Question

Please describe the income distribution effects of international trade in the context of:

a) The Ricardian model.

b) The specific factors model

Answer 1

Income distribution effects of international trade in the case of Recardian model, Recardian model that is comparitive advantage theory of international model,explained International trade make international specialisation. In this mode assumes labour is the only factor can easily mobile from one country to another. Which means countries/industry transfer the labour is comparitively inefficient to other countries/industry comparitively more efficient. Each industries do production in where ever they specialised. So that there is no individual loss due to labour is only factor can mobile so they can work where ever they are specialised they can do that. This will make labour better off. So that through the Recardian model, he explained how people can acheive welfare through international trade with the theory of international trade advantage. He proved his theory income distribution does not  affected by international trade.

Income distribution effects of international trade The specific factors model,The specific model is first established by Jacob viner, In this model mainly 3 factors capital, technology and labour. labour can mobile same as ricardo theory. One is a specific factor that cannote move from one place to another, produce 2 goods.Which is a short run model this model came with critisize the recardian income distribution. This model explained trade can affect inncome distribution that is if one country move to free trade then income distribution will increse mean it causes redistribution of income due to real wage of labour in both the country rises.