decline in the terms of trade with result in a long term decline in real wages. This could mean the developing countries could get poorer and poorer. The specific factor's model (graph 6) shows how this decline in the terms of trade leads to a decrease in the wages of all Indian workers. Labor is the mobile factor in this example. Capital is the specific factor for steel. The original wage rate is w0. But due to the decrease in the relative price in steel, the value of the marginal product of labor in the steel decreases to the dotted line. Thus the wage rate drops from W0 to W1. Less labor is used in the steel industry, resulting in less production. Graph 7 shows that both the returns to labor and capital have decreased. Graph 8 gives a more general picture. In this specific factor's graph, capital is the mobile factor between industrialized nations and third world countries. As the third world countries relative prices decreases, there value of marginal product decreases (or is not as high as it would have been) as shown by a shift to the left to the dotted line. This movement shows that the developing countries are (relatively) losing capital to the industrialized nations. This leads right into graph 9. If the industrialized nations capital to labor ratio is at k** as it would be in this possible case and the developing nations capital to labor ratio is a k, there can be no overlap in factor prices. This would mean that wages and rents in the developing nations could never be the same as in the industrialized world. All these graphs show that there is real concern for third world nations if there is persistent antidumping measures taken against them by industrialized nations. The WTO has stated that in cases involving developing countries special attention should be paid to their economic situations when countries consider imposing antidumping provisions: "[ The WTO's agreement]also calls for 'constructive remedies' to be explored."...
