Last Updated 07 Dec 2022

Advanced International Trade

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In any economy where there exists free mobility of labor force across borders ,labor policies are bound to spill over from one country to another thus will have an impact on international trade. Thus international trade is mostly restricted to goods and services more than to factors of production.

In such a case then goods and services can serve as substitutes to factors of production by importing goods and services produced by such factors. In an open economy, the welfare gains from domestic labor market exports will exceed the share of goods exported.

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 If prices increase for goods the owners of factor of production responsible will benefit in real terms while owners of the other factors will likely push for opposing agendas on controls of mobility of labor across borders. An increase in capital will otherwise benefit both owners of capital and labor.

The first impact would be to increase the amount of untrained labor in fish production in home country. An increased unskilled labor is expected to be more than the amount of capital available.

Owing to the fixed nature of capital, there is expected decreasing returns to scale. But since the untrained labor is mobile within the industries, they are going to move from one industry to another depending on the wage differentials.

The relative price of fish is expected to go down in home country due to the availability of cheap labour.Accordingly; the real wage of the unskilled labor will decrease owing to the powers of demand and supply of labor in the fish industry. The real wages paid to the skilled workers will depend on the output of the economy.

As more unskilled labor flow in a country, output will not be affected since it uses more of skilled labor than unskilled labor, what is going to happen is decreasing returns to scale on unskilled labor and this will lead to more costs than benefits hence decrease the real wages of the skilled labor.

The production of computer chips will be adversely affected since unskilled labor will flow from fish production to computer chips production. With capital and skilled labor fixed, then the production can be increased only by increasing the amount of capital and skilled labor in the country, thefore country’s output is bound to decrease especially in computer chips production and also to some extend on fish production.

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