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Market-dependent Production Set

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  • 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
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Publication status: Forthcoming in
Handle: RePEc:mar:magkse:201145

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

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  1. Alan Blinder, 2010. "Teaching Macro Principles after the Financial Crisis," The Journal of Economic Education, Taylor & Francis Journals, vol. 41(4), pages 385-390, September.
  2. Neary, Peter & Ruane, Frances P, 1988. "International Capital Mobility, Shadow Prices, and the Cost of Protection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 571-85, November.
  3. Neary, J Peter, 1985. "International Factor Mobility, Minimum Wage Rates, and Factor-Price Equalization: A Synthesis," The Quarterly Journal of Economics, MIT Press, vol. 100(3), pages 551-70, August.
  4. 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.
  5. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  6. 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.
  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. Peter Neary, 1988. "Tariffs, Quotas, and Voluntary Export Restraints with and without Internationally Mobile Capital," Canadian Journal of Economics, Canadian Economics Association, vol. 21(4), pages 714-35, November.
  9. Javed Younas, 2011. "Role of foreign direct investment in estimating capital mobility: a reappraisal of Feldstein-Horioka puzzle," Applied Economics Letters, Taylor & Francis Journals, vol. 18(12), pages 1133-1137.
  10. Emily J. Blanchard, 2009. "Trade taxes and international investment," Canadian Journal of Economics, Canadian Economics Association, vol. 42(3), pages 882-899, August.
  11. David Franck, 1999. "Tariff and Quota Reform with International Capital Mobility," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 132-143, July.
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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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