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"Globalisation" and Its Critics: Mutual Gain vs. Cloud Cuckoo Land : Anthony de Jasay
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One elegant achievement of economic thought is the Factor Price Equalisation theorem proved by Paul Samuelson. It states that if trade in goods is free and transport costs are zero, the rewards of factors producing tradable goods will in equilibrium be equal everywhere. More realistic assumptions used by Ohlin and Heckscher yield the result that factor prices will at least tend to converge. The significance of the theorem is that people do not have to migrate from poor to rich countries to achieve higher incomes; free trade will do it for them even if they stay at home. The point of globalisation, then, is that both the rich and the poor countries gain, but the poor ones gain more, faster. Lovers of equality and worldwide "social justice" ought to welcome it, and not begrudge the transfer of less skilled jobs from the richer to the poorer countries.

 

Another result of the Heckscher-Ohlin factor-price-equalisation theorem is that people tend to emigrate from regions with lower wage rates to regions with higher wage rates. The emigration speeds the equalisation of wages. The reduced labor supply in the lower-wage country pressures wages there to rise; and the increased labor supply in the receiving country pressures wages there to fall. The recent outsourcing of technical jobs from the United States to India has been accompanied by many educated young people moving from the United States to India, and is an excellent example of the pressures of factor-price-equalisation in action. Even though goods and services typically travel more quickly than factors of production, if there is any time lag there is a direct incentive for factor movements to occur.