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What Determines Individual Trade-Policy Preferences

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When we talk about the mobility of the factors, we are taking an assumption that the factors can move costlessly amongst sectors. When the free trade comes in, not only is product price affected, but there is a change in factor price also. Hence, with the possibility of shifting sectors, the returns rise for the labor. Hence, when this is possible the support towards free trade is higher, since it affects the income positively. This model generally assumes that there is support for protection in the sectors where the factors employed are those which are scarce.

The above explanation clearly brings out that the factor type that is abundant will support free trade and the scarce one will support protection. However, when the factors cannot move from one sector to other, there are losses in income for the factors of the sector where prices have a decline. These are called comparative disadvantage industries. In such cases, the sector of employment becomes an important factor in determining the trade preferences. However, to have a case in point, UK is not one such type of economy where the above assumption of the trade policy holds.

If we summarize, we can conclude that as per the HO model, the factor type becomes important in having an evaluation of the trade policy preferences while in RV models the industry where the factors are employed becomes important. Also, if we consider any of the trade models with regards to the type of workers, it can be seen that the workers possessing lesser less-skilled workers are expected to gain more from restriction of trade n sectors that have comparative disadvantage and hence they would not show a support for free trade and accept the trade barriers more readily. Nonetheless, there is a caution for those sectors which belong to non-traded industries.

The fact is that such industry sectors cannot be granted trade barriers. We also need to see the effect of trade policy. This is because the national income tends to rise because of free trade.

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preview essay on What Determines Individual Trade-Policy Preferences
  • Pages: 10 (2500 words)
  • Document Type: Essay
  • Subject: Marketing
  • Level: Undergraduate
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