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Many reasons for why the United Kingdom voted to leave the European Union have been proposed. A common one is that imports from the EU
- Many reasons for why the United Kingdom voted to leave the European Union have been proposed. A common one is that imports from the EU hurt low-skilled British workers. Suppose that there are two industries, financial services and manufacturing. Further assume that there are two factors of production, low- skilled and high-skilled workers, and that finance is high-skill intensive and manufacturing is low-skill intensive. Further assume that the United Kingdom is abundant in high-skill labour. Show using the Heckscher-Ohlin model of international trade how relative wages for low-skilled and high-skilled workers are determined when the UK is not a member of the EU. For simplicity, we will model this as autarky (i.e. when there is no free trade between the UK and the rest of the EU). Explain your answer.
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