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Market-dependent Production Set

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Author Info

  • Henrik Egbert

    () (Anhalt University of Applied Sciences Bernburg)

  • Nadeem Naqvi

    () (Justus Liebig University, Giessen)

Abstract

A country’s production possibility frontier or PPF is defined as the boundary of its economy’s production set in the net output space for a given technology and fixed quantities of primary factors of production. In general equilibrium theory, exogenous changes in technology or primary-factor supplies alter equilibrium prices; however, government-policy induced domestic relative commodity price changes do not alter the shape of an economy’s production set. We show that, under international capital mobility, which is empirically significant, the shape of a country’s production set does, in fact, depend on market forces and this shape can be manipulated by government policy.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/45-2011_naqvi.pdf
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Bibliographic Info

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201145.

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Length: 17 pages
Date of creation: 2011
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:201145

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Related research

Keywords: general equilibrium; production possibility frontier; production set; international capital mobility; economic policy;

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References

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  1. Neary, J Peter & Ruane, Frances, 1985. "International Capital Mobility, Shadow Prices and the Cost of Protection," CEPR Discussion Papers 58, C.E.P.R. Discussion Papers.
  2. Lal, Anil K., 1995. "Increasing returns, urban unemployment, and international capital mobility: A trade policy analysis," Journal of Development Economics, Elsevier, vol. 46(1), pages 181-193, February.
  3. Vandana Chandra & Nadeem Naqvi, 1997. "Protection and the Shadow Price of Foreign Exchange with Increasing Returns and International Capital Mobility," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 959-67, November.
  4. Emily J. Blanchard, 2009. "Trade taxes and international investment," Canadian Journal of Economics, Canadian Economics Association, vol. 42(3), pages 882-899, August.
  5. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  6. Alan S. Blinder, 2010. "Teaching Macro Principles after the Financial Crisis," Working Papers 1222, Princeton University, Department of Economics, Center for Economic Policy Studies..
  7. Trisha Bezmen, 2006. "Foreign Aid under Quantitative Restrictions: Welfare Effects and International Factor Mobility," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 709-721, 09.
  8. Azariadis, Costas & Pissarides, Christopher A., 2007. "Unemployment dynamics with international capital mobility," European Economic Review, Elsevier, vol. 51(1), pages 27-48, January.
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Cited by:
  1. Carolin V. Schürg & Nadeem Naqvi, 2011. "Efficiency-wage Hypothesis and the Operational Production Pattern," MAGKS Papers on Economics 201146, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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