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The Ricardian Model with a Continuum of Goods

The Ricardian Model with a Continuum of Goods. a(z)=unit labor requirement at home a*(z)=unit labor requirement abroad A(z)=a*(z)/a(z) ratio of Home to Foreign productivity of labor in good z. A(1)>A(2)>A(3)>. relative wages. w/w*. A(z). z. Z is produced at Home if. (wa(z)<w*a*(z.

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The Ricardian Model with a Continuum of Goods

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  1. The Ricardian Model with a Continuum of Goods a(z)=unit labor requirement at home a*(z)=unit labor requirement abroad A(z)=a*(z)/a(z) ratio of Home to Foreign productivity of labor in good z. A(1)>A(2)>A(3)>... relative wages w/w* A(z) z

  2. Z is produced at Home if (wa(z)<w*a*(z (w/w*<a*(z)/a(z)=(A Demand Side = fraction of income spent on Home-made goods domestic income world income

  3. relative wage w/w* A(z) z

  4. MIGRATION relative wage w/w* z

  5. Because immigrants and native workers compete for the same wages, the home country can only absorb the immigrants in low-productivity industries. The worsened terms of trade result in losses from migration to native workers. Consistent exports Consistent imports

  6. New exports

  7. An increase in Foreign Productivity 1 2 z Home is better off because: (1) consistent Home exports (p(z)=wa(z (p’(z)=w’a(z (2) consistent Home imports p(z)=w*a* p’(z)=w*’a*

  8. (w/w* falls proportionally less than a*(z Transitional goods p(z)=wa(z) p’(z)<w’a(z)

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