Consider two regions in the U.S. before the construction of the national highways in the 1940s: the interior and the coast. There are two factors of production: non-college workers and college workers. The coast was relatively abundant in college workers while the interior was relatively abundant in non-college workers. There are two sectors: manufacturing and services. The manufacturing sector was relatively intensive in non-college workers, while the services sector was relatively intensive in college workers. Before the construction of the interstate highway system, these regions lived in semi-autarky. Once the highways were built, both regions experienced a trade liberalization, and the interior experienced incomplete specialization in manufacturing goods while the coast experienced incomplete specialization in services.

Calculate the real wages for both types of workers in the interior region. Who benefitted the most in the interior region from the construction of highways?

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To calculate the real wages for both types of workers in the interior region we need to consider the ... View the full answer