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Assume a two country (home and foreign) and a two good (hi-tech product and tires) model....

Assume a two country (home and foreign) and a two good (hi-tech product and tires) model. Suppose that high-skilled labor is specific to hi-tech product and low-skilled labor is specific to tires. In the short run, due to the specialized labor skills required in each industry, labor is not mobile across sectors. Use the specific factors model to briefly explain how trade, in the short run, can deepen the wage inequality between high-skilled and low-skilled workers in the home country that has a comparative advantage in the hi-tech product. How can you support free trade despite such income distribution effects of trade in the short run?

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Due to comparative advantage in high tech products, nation will export high tech products. According to Rybenzyski theorem and stopler samulson theorem nation abundant factor I. E high skilled labours will gain. Income of high skilled labours will rise and low skilled labours will loose . This is result of higher demand and revenue in export sector. in import competing industry like tyre higher rent to capital as a result of higher revenue and rent in high tech industry will squeeze revenue and low skilled labour will get less wage. Specific model simply says that high skilled workers will gain because country will export high tech products which use high skilled labour intensively. We can support free trade because with proper redistribution plans even low skilled workers will be better and country's overall welfare will rise much

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