ECONOMY

chapter 45
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TRADE,
IMMIGRATION,
AND
CROSS-BORDER
INVESTMENT
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ronald rogowski
Political economists have understood since the famous Stolper–Samuelson essay of
1941 that increasing international trade—whether in products (e.g. grain, steel) or in
factors of production (labor, capital)—can have strong distributional consequences,
benefiting some groups domestically and internationally but harming others. By
now four distinct models in international political economy offer specific predictions
about the distributional consequences, between and among nations, of cross-border
exchange. 1 While virtually all models conclude that trade improves world welfare, 2
some allow that trade can diminish welfare in particular countries, chiefly the advanced
industrial ones. One of the models predicts factoral within-country effects
¹ The between-nation impact is usually called a welfare effect, and trade in factors of production is
commonly labeled migration or foreign investment. I argue below that the full social and political impact
of lowered barriers to trade—what is commonly called “globalization”—can be understood only if we
look at these effects as a whole, and if we consider trade both in products and in factors.
I omit any discussion of the familiar Ricardo (or, as some would have it, Ricardo–Pangloss)
single-factor, single-good model, since it predicts no distributional consequences: every group in every
country gains from trade.
² I note one small, but potentially important, exception below.