The Gains from Inter-Industry Trade, the Distribution of Income, and Adjustment

Abstract

In Chapters 2–4 we have been largely concerned with the positive effects of inter-industry trade — how the move from autarky to free trade will change commodity prices, industry outputs, production costs, factor utilisation, and factor prices. We have however also paid attention to the likely effects on social welfare through our use of community indifference curves. We have also noted the effects of the move to free trade on the distribution of income within a country or, more accurately, on the real returns to factors of production. In this chapter we shall extend our study of both these areas, and also be more specific about how changes in the distribution of income may, or may not, affect our judgement on whether there are ‘gains from trade’.