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Notes on factor price equality and biased technical change in a two-cone trade model

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  • Becker, Daniel Thomas
  • Gundlach, Erich

Abstract

We reconsider the effects of long-run economic growth on relative factor prices across cones of specialization. We model economic growth as exogenous technical change. Allowing for capital biased technical change with a sector bias and for endogenous commodity prices, we find that economic growth may increase or decrease factor price differences across cones. For a neutral demand side and capital biased growth in the most capital intensive sector, we find that economic growth encourages less factor price diversity across cones. --

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Bibliographic Info

Paper provided by University of Rostock, Institute of Economics in its series Thuenen-Series of Applied Economic Theory with number 68.

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Date of creation: 2006
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Handle: RePEc:zbw:roswps:68

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Keywords: Factor Price Equalization; Cones of Diversification; Trade; Technical Change; Growth;

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  1. Deardorff, A.V., 1991. "The Possibility of Factor Price Equalization, Revisited," Working Papers 277, Research Seminar in International Economics, University of Michigan.
  2. Donald R. Davis & David E. Weinstein, 2001. "An Account of Global Factor Trade," American Economic Review, American Economic Association, vol. 91(5), pages 1423-1453, December.
  3. Xu, Bin, 2001. "Factor bias, sector bias, and the effects of technical progress on relative factor prices," Journal of International Economics, Elsevier, vol. 54(1), pages 5-25, June.
  4. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, 03.
  5. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers 568, China Economics and Management Academy, Central University of Finance and Economics.
  6. Paul Krugman, 1995. "Technology, Trade, and Factor Prices," NBER Working Papers 5355, National Bureau of Economic Research, Inc.
  7. Deardorff, Alan V, 2001. "Does Growth Encourage Factor Price Equalization?," Review of Development Economics, Wiley Blackwell, vol. 5(2), pages 169-81, June.
  8. Xiang, C., 1999. "The Sufficiency of the "Lens Conditions" for Factor Price Equalization in the Case of Two Factors," Working Papers 434, Research Seminar in International Economics, University of Michigan.
  9. Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184 Elsevier.
  10. Findlay, Ronald & Jones, Ronald, 2000. "Factor bias and technical progress," Economics Letters, Elsevier, vol. 68(3), pages 303-308, September.
  11. Findlay, Ronald, 1984. "Growth and development in trade models," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 4, pages 185-236 Elsevier.
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