404 International Organization appendix to this article.5 In an open-economy Heckscher-Ohlin(HO)model,trade can offset the impact of immigration as an economy adjusts to any change in fac- tor supplies by importing less of the goods that can now be produced locally at a lower cost.Again assuming low-skilled immigrants,it is possible that an economy can absorb new workers simply by altering the mix of output of tradable goods, increasing production of low-skill-intensive goods and decreasing production of other goods(in line with the Rybcynski theorem).Wages will not change at all if the local economy is small enough that a change in its output mix has no effect on world prices-a result known as"factor price insensitivity."There are two poss- ible exceptions.If the local economy is very large relative to the rest of the world, of course,the change in output mix can produce a decline in the world prices of low-skill-intensive goods and a subsequent decline in the real wages of low- skilled labor.But this result does not seem applicable for the individual European countries.Alternatively,if the inflow of immigration is itself large,it might induce a change in the set of tradable products that the local economy produces,thus causing a decline in the real wages of low-skilled labor.Yet this also seems like an extreme result,and not one that could be a reasonable basis for calculations about the effects of immigration in most European nations. The theoretical picture becomes no clearer if we allow that the skills of workers can be highly "specific"to particular industries-the standard approach taken in most theoretical recent work on international trade.7 If all goods are traded,so that prices are fixed in world markets,it can be shown that inflows of low-skilled workers will indeed lower real wages for low-skilled natives while raising real wages for high-skilled workers in all industries.(The latter benefits will be larger for high-skilled workers in sectors that use low-skilled labor more intensively.) On the flip side,inflows of any type of high-skilled workers will raise real wages for low-skilled workers while lowering real wages for all high-skilled workers (the latter losses being larger for those who own the same specific skills as the immigrants).While these distributive effects match the predictions generated by the simple closed-economy FP model,they are overturned with the inclusion of nontraded goods in the model.If immigration can lead to a reduction in the price of nontraded goods (that is,if it raises the output of such goods more rapidly than it raises aggregate demand for them),it is unclear whether native workers with skills similar to those of immigrants will be worse off in real terms.(The outcome will depend in part on their consumption tastes.)The effects of immigration inflows on real earnings are similarly ambiguous in the specific-factors model when the country in question is large relative to world markets.18 15.This appendix and other supplements referred to in later sections are available for download at the authors'Web site at (http://www.people.fas.harvard.edu/-jhainm/research.htm). 16.Leamer and Levinsohn 1995. 17.See Jones 1971;and Grossman and Helpman 1994. 18.Note that,while we have concentrated on the labor-market effects here,there is also consider- able debate over the impact of immigration on government spending and tax revenues.One commonappendix to this article+ 15 In an open-economy Heckscher-Ohlin ~HO! model, trade can offset the impact of immigration as an economy adjusts to any change in fac￾tor supplies by importing less of the goods that can now be produced locally at a lower cost+ Again assuming low-skilled immigrants, it is possible that an economy can absorb new workers simply by altering the mix of output of tradable goods, increasing production of low-skill-intensive goods and decreasing production of other goods ~in line with the Rybcynski theorem!+ Wages will not change at all if the local economy is small enough that a change in its output mix has no effect on world prices—a result known as “factor price insensitivity+” 16 There are two poss￾ible exceptions+ If the local economy is very large relative to the rest of the world, of course, the change in output mix can produce a decline in the world prices of low-skill-intensive goods and a subsequent decline in the real wages of low￾skilled labor+ But this result does not seem applicable for the individual European countries+ Alternatively, if the inflow of immigration is itself large, it might induce a change in the set of tradable products that the local economy produces, thus causing a decline in the real wages of low-skilled labor+ Yet this also seems like an extreme result, and not one that could be a reasonable basis for calculations about the effects of immigration in most European nations+ The theoretical picture becomes no clearer if we allow that the skills of workers can be highly “specific” to particular industries—the standard approach taken in most theoretical recent work on international trade+ 17 If all goods are traded, so that prices are fixed in world markets, it can be shown that inflows of low-skilled workers will indeed lower real wages for low-skilled natives while raising real wages for high-skilled workers in all industries+ ~The latter benefits will be larger for high-skilled workers in sectors that use low-skilled labor more intensively+! On the flip side, inflows of any type of high-skilled workers will raise real wages for low-skilled workers while lowering real wages for all high-skilled workers ~the latter losses being larger for those who own the same specific skills as the immigrants!+ While these distributive effects match the predictions generated by the simple closed-economy FP model, they are overturned with the inclusion of nontraded goods in the model+ If immigration can lead to a reduction in the price of nontraded goods ~that is, if it raises the output of such goods more rapidly than it raises aggregate demand for them!, it is unclear whether native workers with skills similar to those of immigrants will be worse off in real terms+ ~The outcome will depend in part on their consumption tastes+! The effects of immigration inflows on real earnings are similarly ambiguous in the specific-factors model when the country in question is large relative to world markets+ 18 15+ This appendix and other supplements referred to in later sections are available for download at the authors’ Web site at ^http:00www+people+fas+harvard+edu0;jhainm0research+htm&+ 16+ Leamer and Levinsohn 1995+ 17+ See Jones 1971; and Grossman and Helpman 1994+ 18+ Note that, while we have concentrated on the labor-market effects here, there is also consider￾able debate over the impact of immigration on government spending and tax revenues+ One common 404 International Organization