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PCR and Equilibrium Conditions

January 14, 2004

In his  latest version of the "problems with free trade" argument, PCR appears to grant that free trade is beneficial generally, but is only problematic when all (or nearly all) firms seeking cheap labor actually relocate to the cheap labor market country. But even aside from the remoteness of this condition in reality, it can be argued that, at the margin, as more and more firms relocate, they bid up wages (and other factor prices) in the low-wage country labor market and their departure lowers wages in the high-wage domestic market. So if PCR is insistent on doing general equilibrium analysis in his criticism of free trade,  why doesn't this general equilibrating process tend to diminish the wage gap advantage and slow or halt the process of relocation that so concerns PCR and chuck schumer?



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