Choice between international capital and labor mobility for diversified economies

Abstract

This paper ranks two international economic regimes, free trade plus free international capital mobility and free trade plus free international labor mobility, from the viewpoint of two countries which are under diversified production in a two-factor, two-good general equilibrium model in which production technologies are internationally different. It shows that a country's preference toward the two regimes is determined by relative factor endowments, relative factor intensities, and inter-country difference in labor productivity and that under some circumstances both countries unanimously prefer the same regime but under other circumstances they prefer different regimes.