Factor Growth and Equalized Factor PricesInternational Review of Economics and Finance
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AbstractThis paper considers two simple questions relating to the Heckscher–Ohlin model: (i) How does factor growth affect the terms of trade between the North and the South? (ii) If factor prices are equalized by trade, at what levels are they equalized? Regardless of where it occurs, labor growth improves the terms of trade of the capital-abundant region, whereas capital growth has the opposite effect. Equalized factor prices are “less” than a convex combination of autarky factor prices. A numerical example using Cobb-Douglas production and utility functions illustrates the propositions.
Copyright OwnerElsevier Inc.
Citation InformationE. Kwan Choi. "Factor Growth and Equalized Factor Prices" International Review of Economics and Finance Vol. 17 Iss. 4 (2008) p. 517 - 528
Available at: http://works.bepress.com/ekwan-choi/21/