International Trade Models: Standard and Specific Factors

I explain, using the Production Possibilities Frontier, how a country shifts its production and consumption (and is better off) partially specializing in its export good after it opens to trade. Within the country, these gains are more ambiguous: Workers move into the export good (and out of the import good) in search of higher nominal wages. This can help the factor used in this export good. An increase in the world price of machinery exports, for example, can raise the payment to capital and hurt the payment for land.