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Notes on Factor Price Equality and Biased Technical Change in a Two-Cone Trade Model

  • Daniel Becker
  • Erich Gundlach

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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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1300.

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Length: 17 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:kie:kieliw:1300
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  1. 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.
  2. Deardorff, Alan V, 2001. "Does Growth Encourage Factor Price Equalization?," Review of Development Economics, Wiley Blackwell, vol. 5(2), pages 169-81, June.
  3. 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.
  4. 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.
  5. Daron Acemoglu, 2000. "Labor- and Capital- Augmenting Technical Change," NBER Working Papers 7544, National Bureau of Economic Research, Inc.
  6. Paul Krugman, 1995. "Technology, Trade, and Factor Prices," NBER Working Papers 5355, National Bureau of Economic Research, Inc.
  7. Donald R. Davis & David E. Weinstein, 1998. "An Account of Global Factor Trade," Harvard Institute of Economic Research Working Papers 1849, Harvard - Institute of Economic Research.
  8. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers 568, China Economics and Management Academy, Central University of Finance and Economics.
  9. Deardorff, A.V., 1991. "The Possibility of Factor Price Equalization, Revisited," Working Papers 277, Research Seminar in International Economics, University of Michigan.
  10. 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.
  11. Findlay, Ronald & Jones, Ronald, 2000. "Factor bias and technical progress," Economics Letters, Elsevier, vol. 68(3), pages 303-308, September.
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