igned to restrict the flow of goods into a country, by causing them to be too expensive to compete with domestically produced goods. A quota also seeks to restrict the flow of goods into a country. It does so through a direct restriction on the number of items which may be imported, however, as opposed to an attempt to price the goods out of the market (Walther, 1997).
The Cobb-Douglas production assumes that the substitution of labor and capital is technically feasible within an economy. The function attempt to explain the relative constancy of the shares of capital and labor in national income (Gordon, 1995). The Cobb-Douglas production function is an equilibrium model. e greater application of capital as opposed to labor that is used in the economy of the United States in relation to the capital-labor ratio that has prevailed in Mexico is held to explain the differentials in the per capita GDP levels in each country which favor the United States.
The Heckscher-Ohlin theory holds that a country will tend to export the commodities that use relatively more of the factors of production which are relatively more abundant in that country. The theory is based on an assumption that different countries have different quantities of the factors of production·land, raw materials, labor, and capital. In effect, the Heckscher-Ohlin theory explains why the theory of comparative advantage is valid. The specific factor-price equalization theory holds that, under absolutely free international trade, not only the prices of traded products, but also the prices of the factors of production, will be equalized among the trading countries (Walther, 1997).
The Stolper-Samuelson theory predicts that removing trade barriers will have different effects in different countries. A country will high levels of skilled labor will gain from increased trade; however, a country with high levels of unskilled labor will experience losses for skilled...