Question

In a labor-abundant nation, will workers be more or less favorable to international trade? What about a capital-abundant nation? Why?

Answer 1

Labor abundant nation is expected to specialize in products that uses labor intensively and this will indicate that it will export the same. WIth international price convergence, labor income will increase with increased relative wages and so workers will be more likely to favour trade. In a capital-abundant nation, workers realize that their relative wages would decline as their demand would fall and hence they would oppose trade because their standards of living will fall when the nation uses more capital and less labor.