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Factor Supply Changes in Small Open Economies: Rybczynski Derivatives under Increasing Marginal Costs

Author

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  • Andreas Pfingsten

    (University of Münster, Department of Banking)

  • Reiner Wolff

    (University of Fribourg, Department of Quantitative Economics)

Abstract

We discuss the validity of Rybczynski’s theorem under increasing marginal costs within firms or industries. In particular, we show that an extra supply of any factor may lead to an expansion of all sector outputs if at least one sector permits input substitution. We provide a corresponding necessary and sufficient condition. This condition can even be satisfied when the equilibrium is Walrasian and Marshallian stable. Our findings are also robust with respect to aggregate improvements in total factor productivity which raise the economy’s outputs beyond private returns.

Suggested Citation

  • Andreas Pfingsten & Reiner Wolff, 2009. "Factor Supply Changes in Small Open Economies: Rybczynski Derivatives under Increasing Marginal Costs," Finnish Economic Papers, Finnish Economic Association, vol. 22(1), pages 9-20, Spring.
    • Handle: RePEc:fep:journl:v:22:y:2009:i:1:p:9-20
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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