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The New Ricardian Specific Factor Model

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  • Sugata Marjit
  • Gouranga Gopal Das

Abstract

This paper explores the implications on trade and wage inequality of introducing financial capital or credit in the standard Ricardian model of production, where a given amount of start-up credit is used to employ sector specific skilled and unskilled workers following the Wage Fund approach of classical economists. Thus, we have the Specific Factor (SF) structure of Jones (1971) in a new Ricardian model (NRM) with credit and two types of labour. With an entirely different mechanism from the conventional Neo-Classical structure, distributional consequences of changes in endowments, commodity prices, and financial capital are established. Comparisons with Jones (1971) show that unlike SF model, credit expansion affects wages and nominal costs without affecting trade patterns, while rise in the relative price of the skill-intensive good causes skilled wage to hike less than proportionately, and may cause return to capital to inflate more than the wages We extend the basic model to analyse immigration, unemployment and imperfect credit market.

Suggested Citation

  • Sugata Marjit & Gouranga Gopal Das, 2021. "The New Ricardian Specific Factor Model," CESifo Working Paper Series 9052, CESifo.
    • Handle: RePEc:ces:ceswps:_9052
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    Cited by:

    1. Sugata Marjit & Noritsugu Nakanishi, 2021. "The Wage Fund Theory and the Gains from Trade in a Dynamic Ricardian Model," CESifo Working Paper Series 9218, CESifo.
    2. Sugata Marjit & Meghna Dutta & Moushakhi Roy, 2022. "Role of Finance in Dixit-Stiglitz-Krugman Model of International Trade," CESifo Working Paper Series 9804, CESifo.
    3. Sugata Marjit & Gouranga Gopal Das, 2022. "Finance, Trade, Man and Machines: A New-Ricardian Heckscher-Ohlin-Samuelson Model," CESifo Working Paper Series 9672, CESifo.
    4. Marjit, Sugata & Das, Gouranga G., 2023. "Finance, Trade, Man and Machines: A New-Ricardian Heckscher-Ohlin-Samuelson Model," GLO Discussion Paper Series 1218, Global Labor Organization (GLO).
    5. Sugata Marjit & Noritsugu Nakanishi, 2023. "The wage fund theory and gains from trade in a dynamic Ricardian model," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(4), pages 879-897, December.

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    More about this item

    Keywords

    wage-fund; specific factor; Ricardo; inequality; credit; general equilibrium;
    All these keywords.

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • B17 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - International Trade and Finance
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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