Please, justify your answer! Is it true or false? According to the sector model (Ricardo-Viner), the...

Please, justify your answer!

Is it true or false?

According to the sector model (Ricardo-Viner), the distributional consequences of trade politics falls across firms within industry

Expert Solution

Yes, the distributional consequences of trade politics fall across firms within the industry.

For example. In this model, we assume that there are two goods, one in import and the other in export. The price of goods in the export sector rises, this results in higher profit in the export sector, since wages and other changes need a period of time. After some time the firms will start hiring more labor due to the increase in profit. To do this the firms start to increase the wages to attract the laborers. Since in the sector model, laborers are mobile, this change would induce a movement shift in more laborers to the export sector. Since total laborers are constant, this shift will be from the import sector. Since wages have risen the import sector too has to raise the wages.

Lower revenues and higher wages in the import sector lowers the return to capital. While in the export sector higher prices and output will raise the return to capital. The firms bear the brunt of all this.

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Rahul Sunny answered 1 year ago

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