ECONOMY

818 trade, immigration, and cross-border investment
Add to this what is suggested by the impressive historical work of O’Rourke and
Williamson (2001), namely that migration has equalized factor prices more quickly
and thoroughly than either investment or trade, and we perhaps begin to see why: (a)
developed-country politicians have found it far harder to construct pro-immigration
than pro-free trade coalitions; and (b) only highly undemocratic regimes (think the
Berlin Wall) have been able to restrict emigration.
But the pattern oftrade,whetherinproductsorfactors,predictedbytheHOtheory
has increasingly seemed at odds with reality. This is the first major anomaly we must
face. Even in the 1980s, HO would have predicted capital to have earned about 60
times as much in India as in the USA, making it something of a marvel that, even
allowing for a lot of political risk, capital did not flood from the rich countries to
the poor ones (Lucas 1990). Today, HO predicts with equal clarity that skilled labor
should be migrating in droves from the rich countries (where skilled workers are
abundant) to the poor ones (where they are scarce: cf. Davis and Weinstein 2005,
discussed at greater length below).
That important issue to one side, the HO model predicts the same factoral coalitionsonmigrationandinvestmentasitdoesontrade:indevelopedcountries,allunskilled
workers should oppose immigration and outward foreign investment; in poor
countries, all skilled workers and capitalists should oppose emigration and inward
foreign investment. As a first approximation of the alignments that have emerged on
the issue of the new, and now seemingly stillborn, European Constitution, this does
not do badly. 7
2 Specific Factors
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As was emphasized above, the Heckscher–Ohlin model, like Ricardo’s classical picture,
assumes that factors of production (labor, capital, land) can redeploy costlessly
between sectors. Workers, or machinery or land, that are displaced by import competition
move frictionlessly into exporting sectors. What happens if, somewhat more
realistically, we replace this assumption of “mobile factors” with one in which at
least some factors are “specific,” i.e. can be used only in a particular sector, or can
be adapted to others only at considerable cost?
(a) Trade in products.TheRicardo–Viner (RV) specific-factors model is straightforward,
indeed obvious: factors specific to import-competing sectors will embrace protection,
those specific to exporting sectors will favor free trade. Thus, while American
capitalists generally should favor free trade (because capital is abundant in the USA),
owners of textile factories, swamped by Third-World imports and unable to convert
their factories to other uses, will (and do) advocate protection. A more interesting
⁷ In Paris, wealthy districts voted overwhelmingly yes, poor ones no. In France as a whole, farmers,
blue-collar workers, public sector employees, and the unemployed all voted no by more than 60%. A
major issue was the likelihood of increasing immigration from the new member countries. See the New
York Times, 30 May 2005.