DP1661 Were Trade and Factor Mobility Substitutes in History?

Author(s): William J Collins, Kevin Hjortshøj O'Rourke, Jeffrey G Williamson
Publication Date: June 1997
Keyword(s): Factor Mobility, Trade
JEL(s): F1, F2, N7
Programme Areas: Human Resources
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1661

Trade theorists have come to understand that their theory is ambiguous on the question: are trade and factor flows substitutes? While this sounds like an open invitation for empirical research, hardly any serious econometric work has appeared in the literature. This paper uses history to fill the gap. It treats the experience of the Atlantic economy between 1870 and 1940 as panel data with almost 700 observations. When shorter run business cycles and ‘long swings’ are extracted from the panel data, substitutability is soundly rejected. When secular relationships are extracted over longer time periods and across trading partners, once again substitutability is soundly rejected. Finally, the paper explores immigration policy and finds that policy-makers never behaved as if they viewed trade and immigration as substitutes.