TRADE, FACTOR MOBILITY, AND INCOME-DISTRIBUTION IN A REGIONAL MODEL WITH COMPENSATING WAGE DIFFERENTIALS

This paper extends the basic theorems of international trade to a regional model where mobile factors of production consume non-traded goods in the region where they are employed. Factor mobility will not necessarily equate the wages of mobile factors across regions in this case, since wage differentials may be required in equilibrium to compensate for differences in prices of non-traded goods. It is shown that the expenditure function for mobile factors can be used to obtain generalizations of the factor price equalization, Rybczynski, Heckscher-Ohlin, and Stolper-Samuelson theorems which will be applicable to interregional trade.