On the choice between international capital and labor mobility

This paper examines the choice of international factor mobility. It proves in a two-country, two-factor, one-commodity model that the policy-setter, when it maximizes its own welfare by following the Ramaswami policy of monopsonistic import of its scarce factor, impoverishes the passive country. Furthermore, the paper studies the choice of mobility in a two-commodity model and shows that the optimality of the monopsonistic import policy extends to a situation with trade in goods. Lastly, it addresses the welfare effects in the passive country in the two-commodity model.