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Suppose that a relatively capital-abundant country is exporting the capital-intensive good and importing the labor-intensive good,...

Suppose that a relatively capital-abundant country is exporting the capital-intensive good and importing the labor-intensive good, but that the “specific factors” model of Chapter 8 applies rather than the Heckscher-Ohlin model. Assess the effect on the return to labor of the imposition of a tariff on the labor-intensive good.

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Return to labour will rise as increased domestic production due to tariff leds to greater demand for labour. But it will increase only. On the other hand more exports in capital intensive products raises profits and demand for labour. Thus wages will rise in export sector. Labour will move from import substitution sector to export oriented sector. This will increase once again wages in import substitution sector. Thus if labour is mobile and capital immobile wages of labour will rise

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