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Market-dependent production set

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  • Egbert, Henrik
  • Naqvi, Nadeem

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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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33829.

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Date of creation: 02 Oct 2011
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Handle: RePEc:pra:mprapa:33829

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

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  1. 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.
  2. 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.
  3. 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.
  4. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  5. 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.
  6. Emily J. Blanchard, 2009. "Trade taxes and international investment," Canadian Journal of Economics, Canadian Economics Association, vol. 42(3), pages 882-899, August.
  7. 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.
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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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