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Profit, rent and the terms of trade

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  • Gibson, Bill
  • McLeod, Darryl

Abstract

Andrews (1985) investigates the theoretical coherence and policy relevance of our (1982) model and concludes, contrary to our own findings, that a positive rate of profit is not necessary to obtain a two-signed derivative of the profit rate with respect to agriculture's terms of trade. She characterizes the model as ‘Neo-Ricardian’ on the grounds that the technology is the ‘culprit’ and also questions the empirical relevance of our ‘fixed profit equilibrium’ or ‘land-price treadmill’. We show here that if a viability condition stated in our original paper holds, parameter values of the model must yield a positive rate of profit if the profit rate is to fall following an improvement in the terms of trade. We then contrast our model with a more neoclassical one in which the sign of the derivative does strictly depend on the ‘technology’, that is, upon factor intensities. Finally, we present empirical evidence from a detailed study of the U.S. economy based on our original model. These data support the existence of a land-price treadmill in agriculture, especially for countries in which workers are successful in defending a given real wage.

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  • Gibson, Bill & McLeod, Darryl, 1985. "Profit, rent and the terms of trade," Journal of Development Economics, Elsevier, vol. 17(1), pages 131-139.
    • Handle: RePEc:eee:deveco:v:17:y:1985:i:1:p:131-139
    DOI: 10.1016/0304-3878(85)90026-4
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    1. Andrews, Margaret S., 1985. "Agricultural terms of trade and distributional perversities in a neo-Ricardian model," Journal of Development Economics, Elsevier, vol. 17(1), pages 117-129.
    2. Gibson, Bill & McLeod, Darryl, 1982. "Terms-of-trade policy in a model with non-produced means of production," Journal of Development Economics, Elsevier, vol. 10(1), pages 31-45, February.
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    Cited by:

    1. Amitava Krishna Dutt, 1989. "Sectoral Balance: A Survey," WIDER Working Paper Series wp-1989-056, World Institute for Development Economic Research (UNU-WIDER).
    2. Andrews, Margaret S., 1985. "Profit, rent and the terms of trade," Journal of Development Economics, Elsevier, vol. 17(1), pages 141-149.

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    1. Amitava Krishna Dutt, 1989. "Sectoral Balance: A Survey," WIDER Working Paper Series wp-1989-056, World Institute for Development Economic Research (UNU-WIDER).
    2. Andrews, Margaret S., 1985. "Profit, rent and the terms of trade," Journal of Development Economics, Elsevier, vol. 17(1), pages 141-149.
    3. Andrews, Margaret S., 1985. "Agricultural terms of trade and distributional perversities in a neo-Ricardian model," Journal of Development Economics, Elsevier, vol. 17(1-2), pages 117-129.

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