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Does Growth Encourage Factor Price Equalization?

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  • Deardorff, A.V.

Abstract

This paper first notes the importance of "one-cone" versus "multi-cones"equilibria in the Heckscher-Ohlin Model of international trade, then asks whether the process of economic growth as modeled in neoclassical growth models tends to lead the world more toward one or the other. The one-cone model has been the workhorse of international trade theory for many years. It is characterized by a single set (cone) of relative factor endowment combinations within which countries can diversify their production of all goods. If all countries' actor endowments are within that cone, then there is global factor price equalization (FPE) under free trade. The multi-cone model has received attention more recently, and includes separate cones of diversification within each of which there is FPE, but across which factor prices differ. There are several important differences between these two models. The paper examines several neoclassical models of trade and growth, distinguished by their assumptions about the determinants of saving, to see what they imply about the convergence or non-convergence of country factor endowments into a single cone. None of the models suggest convergence, while some of them strongly imply that different countries will end up in different cones. This therefore suggests that the multi-cone version of the Heckscher-Ohlin model should be preferred.

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Bibliographic Info

Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 431.

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Length: 24 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:mie:wpaper:431

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Postal: ANN ARBOR MICHIGAN 48109
Web page: http://www.fordschool.umich.edu/rsie/
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Keywords: INTERNATIONAL TRADE;

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Cited by:
  1. Becker, Daniel Thomas & Gundlach, Erich, 2006. "Notes on factor price equality and biased technical change in a two-cone trade model," Thuenen-Series of Applied Economic Theory 68, University of Rostock, Institute of Economics.
  2. An--Chi Tung, 2003. "Beyond Flying Geese: The Expansion of East Asia"s Electronics Trade," German Economic Review, Verein für Socialpolitik, vol. 4(1), pages 35-51, February.
  3. Gundlach, Erich & de Vaal, Albert, 2012. "Technology differences in empirical studies of international trade," Economics Letters, Elsevier, vol. 117(1), pages 18-20.
  4. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, vol. 59(1), pages 101-136, January.
  5. Xiang, Chong, 2007. "New goods and the skill premium," Journal of International Economics, Elsevier, vol. 71(1), pages 133-147, March.
  6. Alan Deardorff, 2001. "Developing country growth and developed country response," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(4), pages 373-392.
  7. Daniel Becker & Erich Gundlach, 2005. "Notes on Factor Price Equality and Biased Technological Change in a Two-Cone Trade Model," DEGIT Conference Papers c010_006, DEGIT, Dynamics, Economic Growth, and International Trade.
  8. Jean-Michel Pasteels & Michaël Pajot & Lionel Fontagné, 2002. "Potentiels de commerce entre économies hétérogènes : un petit mode d’emploi des modèles de gravité," Économie et Prévision, Programme National Persée, vol. 152(1), pages 115-139.
  9. Jin, Yi & Zeng, Zhixiong, 2007. "International Growth Equalization along nonbalanced constant growth paths," Economics Letters, Elsevier, vol. 96(2), pages 245-252, August.

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