Goods versus factors: When borders open, who moves?

Michael Michaely addresses an issue which is as old as international trade theory but remains unsettled and insufficiently analysed, namely: when borders open and both goods and factors may cross them, which of the two moves? Or, as should normally be the case, when both do, which is the more significant in bringing about equilibrium in the markets for goods and factors? Intuition would suggest that the outcome would be related to the level of barriers to trade and factor movement, respectively. The paper analyses these barriers and brings to the fore the observation that a major consideration would be the contrast between the movement of factors among nations and the shift in production among activities in the region. The paper takes a concrete case, namely the opening of the borders between Israel, on the one hand, and the West Bank and Gaza on the other. He finds that factors would move more than goods in part due to the restrictions on labour to settle down in Israel and to barriers to shifts in production in the West Bank and Gaza. While Michaely's paper does not bear directly on a specific piece of work of Corden, it does bear on Corden's approach of taking on a policy issue to fashion an answer within a simple and clearly defined framework.