Short-Run Adjustments in Taiwan to Free Trade in a Multisector Specific Factors Model

ABSTRACT While Taiwan developed due to progress toward free trade, slowing growth since the 1990s has revived protectionism as trade agreements falter worldwide. The present study contributes to the ongoing debate examining the short-run income redistribution due to unilateral free trade in an applied specific factors model with 77 industries. The simulations reveal considerable declines in the returns to capital in the import competing industries relative to other industries, a moderate wage increase, and a negligible impact on the price of natural resource inputs. The short-run adjustments to immigration and foreign direct investment are also examined.