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International-price and terms-of-trade effects on factor productivity: international comparisons

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Author Info

  • Claudio Sfreddo

    (CREA Institute of Applied Macroeconomics)

Abstract

In this paper, we present a technique to decompose changes in factor prices into the contribution of major determinants, namely movements in domestic and international prices, changes in capital and labour quantities, and technological progress. This is done in an open-economy framework. While building on the same principles as GDP growth accounting, our technique considers the specific form of factor demand functions when these are derived from a GDP Translog function. We also break down the combined effect of changes in export and import (i.e. international) prices into a pure terms-of-trade effect and a residual international-price effect. This distinction is important, and is illustrated by the fact that an equiproportional change in international prices, while not affecting terms of trade, can trigger changes in factor productivity and therefore impact on workers' and capital owners' welfare. Decomposition of movements in factor productivity is implemented empirically using data from ten OECD countries.

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File URL: http://128.118.178.162/eps/it/papers/0408/0408002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0408002.

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Length: 40 pages
Date of creation: 12 Aug 2004
Date of revision: 07 Sep 2004
Handle: RePEc:wpa:wuwpit:0408002

Note: Type of Document - pdf; pages: 40
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Web page: http://128.118.178.162

Related research

Keywords: factor productivity; GDP functions; international prices; terms of trade;

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  1. Burgess, David F., 1974. "Production theory and the derived demand for imports," Journal of International Economics, Elsevier, vol. 4(2), pages 103-117, May.
  2. Kohli, Ulrich, 2004. "Real GDP, real domestic income, and terms-of-trade changes," Journal of International Economics, Elsevier, vol. 62(1), pages 83-106, January.
  3. W.E. Diewert & Catherine J. Morrison, 1985. "Adjusting Output and Productivity Indexes for Changes in the Terms of Trade," NBER Working Papers 1564, National Bureau of Economic Research, Inc.
  4. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
  5. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
  6. Ulrich R. Kohli, 1978. "A Gross National Product Function and the Derived Demand for Imports and Supply of Exports," Canadian Journal of Economics, Canadian Economics Association, vol. 11(2), pages 167-82, May.
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