Factor Market Distortions, the Gains from Trade and Comparative Advantage

The paper compares and contrasts various models of factor market distortions and their implications for gains from trade and the theorem of comparative advantage. The focus is on models with sector specific wage rates and involuntary unemployment. The models and results of the seventies and early eighties are compared with results obtained from the efficiency wage hypothesis. Necessary and sufficient conditions for trade gains and the theorem of comparative advantage are derived. An analogue of the concept of procompetitive gains is put forward and interpreted.