ECONOMY

824 trade, immigration, and cross-border investment
and foreign investment. The difference, as indicated earlier, is that under free trade
the winners’ gains will outweigh the losers’ losses; under migration this need not be
the case.
(d) In the RV, the neo-Ricardian specific factors, and the firm-specific EOS models,
gains and losses from trade will divide very much along sectoral lines, but with very
different specific implications. In both the RV and the neo-Ricardian pictures of the
world, the most productive, export-successful sectors should most favor free trade;
the least productive, most import-threatened ones should be protectionist. Under
RV, however, workers should most oppose immigration (and owners should most
favor it) in the least productive, most import-pressured sectors; while workers in a
neo-Ricardian specific-factors world will most oppose immigration in precisely the
economy’s most productive sectors.
Where economies of scale are internal to the firm (again, think Boeing or Airbus)
workers and owners should again unite, not on behalf of protection but in favor of the
subsidies and opening of foreign markets that will permit them to achieve an eventual
world monopoly. Where EOS are external to the firm, workers and owners will favor
free trade and, in most cases, free immigration.
6 Important Research Questions
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Given this theoretical background, we can isolate several topics as important for
current and future research.
(a) What kind of trade? Sometradeinfactorsandproductsisdrivenbydifferences
in factor endowments, some by differences in technology, some by economies of
scale. Surely China’s exports of labor-intensive toys and Mexico’s of low-skill labor are
driven by factor endowments; but America’s or Sweden’s imports of high-skill labor,
with which they are already abundantly endowed, must be a result of technological
superiority or of locational economies of scale. The theories imply unambiguously
that these different kinds of trade will have different distributional effects, and hence
quite different political consequences: factor-endowments trade (e.g. with China)
is likely to alienate low-skill workers in advanced economies, but it should prove
possible (see below) to blunt their resistance through compensation; immigration,
particularly where it is based on technological superiority, may not be politically
resolvable; while trade based on economies of scale will ignite few domestic conflicts
but major ones between nations.
(b) How specific are the factors? This has been a major line of enquiry, implicated for
example in the work of Scheve and Slaughter, Mayda and Rodrik, and most prominently
Michael Hiscox. Fortunately both direct and indirect measures (cross-sectoral
differences in wage and profit rates; observed patterns of sectoral vs. factoral opinion
andlobbying)canbedeployedtogoodeffect. But recent work reminds us also that
the extent of factor specificity is in large part endogenous (conditioned by welfare and