Published online by Cambridge University Press: 24 February 2010
There is something paradoxical in the attitude of international trade economists in the ‘trade and jobs’ debate. Most international economists would argue that trade did not matter much in determining the economic (mis)fortunes of unskilled workers in industrial countries, thereby denying the empirical and policy relevance of the very same theory that is covered at length in most of the standard textbooks on trade. When, however, trade economists turn to the developing countries case, they typically conclude that openness is a major determinant of the wellbeing of unskilled workers, with protectionism being a source of substantial inequality. Adrian Wood's previous research on industrial countries has contributed significantly to redress this imbalance, by arguing on the basis of a modified net factor-content approach that trade with developing countries can have sizable distributional effects in industrial countries. This should solve the paradox and re-establish the symmetry in the effects of trade between industrial and developing countries. This is not the end of the story, however. In this new piece of research, Adrian Wood collects extensive empirical evidence to show that quite often trade liberalisation has a negative impact on unskilled workers even in developing countries. We have come full circle, with the paradox simply reversed.
That trade liberalisation may have the opposite effects to those predicted by the standard H–O–S theory does not certainly come as a surprise to theorists. It is not difficult to build models, fully rooted in factor-endowment theory, where trade can lead to an income fall for the supposedly abundant factor.