Specific Factors Models

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International Trade

Course (61 videos)

Specific Factors Models

Specific Factors Models are based on the basic point that not all factors of production are mobile. Immobile factors are affected differently whether imports or exports increase in a sector. For instance, in the 1980s, as Japanese cars became more popular and were imported to the US, American auto workers in Detroit became worse off. Many were tied to Detroit and to the auto sector and faced lower wages or unemployment. An example of where an increase in exports positively affects immobile factors of production can be seen in the case of the French wine industry. When demand for French wine increases, owners of French vineyards — the land being a fixed factor — are better off. The bottom line is that changes in trade fall mainly upon the fixed factors of production.

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