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Does Growth Encourage Factor Price Equalization?

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  • Deardorff, A.V.

Abstract

This paper first notes the importance of "one-cone" versus "multi-cones"equilibria in the Heckscher-Ohlin Model of international trade, then asks whether the process of economic growth as modeled in neoclassical growth models tends to lead the world more toward one or the other. The one-cone model has been the workhorse of international trade theory for many years. It is characterized by a single set (cone) of relative factor endowment combinations within which countries can diversify their production of all goods. If all countries' actor endowments are within that cone, then there is global factor price equalization (FPE) under free trade. The multi-cone model has received attention more recently, and includes separate cones of diversification within each of which there is FPE, but across which factor prices differ. There are several important differences between these two models. The paper examines several neoclassical models of trade and growth, distinguished by their assumptions about the determinants of saving, to see what they imply about the convergence or non-convergence of country factor endowments into a single cone. None of the models suggest convergence, while some of them strongly imply that different countries will end up in different cones. This therefore suggests that the multi-cone version of the Heckscher-Ohlin model should be preferred.

Suggested Citation

  • Deardorff, A.V., 1998. "Does Growth Encourage Factor Price Equalization?," Working Papers 431, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:431
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    Citations

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    Cited by:

    1. Alan Deardorff, 2001. "Developing country growth and developed country response," The Journal of International Trade & Economic Development, Taylor & Francis Journals, pages 373-392.
    2. Barua, Alokesh & Pant, Manoj, 2014. "Trade and wage inequality: A specific factor model with intermediate goods," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 172-185.
    3. Jin, Yi & Zeng, Zhixiong, 2007. "International Growth Equalization along nonbalanced constant growth paths," Economics Letters, Elsevier, vol. 96(2), pages 245-252, August.
    4. Alokesh Baura & Priyanta Ghosh, 2015. "On Wage Inequality, Trade and Technology: Theory and Empirics," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 15-09, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
    5. Becker, Daniel Thomas & Gundlach, Erich, 2006. "Notes on factor price equality and biased technical change in a two-cone trade model," Thuenen-Series of Applied Economic Theory 68, University of Rostock, Institute of Economics.
    6. Gundlach, Erich & de Vaal, Albert, 2012. "Technology differences in empirical studies of international trade," Economics Letters, Elsevier, vol. 117(1), pages 18-20.
    7. Xiang, Chong, 2007. "New goods and the skill premium," Journal of International Economics, Elsevier, pages 133-147.
    8. Daniel Becker & Erich Gundlach, 2005. "Notes on Factor Price Equality and Biased Technological Change in a Two-Cone Trade Model," DEGIT Conference Papers c010_006, DEGIT, Dynamics, Economic Growth, and International Trade.
    9. Lorenzo Rotunno & Adrian Wood, 2015. "Wages and endowments in a globalised world," Economics Papers 2015-W11, Economics Group, Nuffield College, University of Oxford.
    10. An--Chi Tung, 2003. "Beyond Flying Geese: The Expansion of East Asia"s Electronics Trade," German Economic Review, Verein für Socialpolitik, vol. 4(1), pages 35-51, February.
    11. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, pages 101-136.
    12. Lionel Fontagné & Michaël Pajot & Jean-Michel Pasteels, 2002. "Potentiels de commerce entre économies hétérogènes : un petit mode d'emploi des modèles de gravité," Economie & Prévision, La Documentation Française, pages 115-139.
    13. repec:eee:chieco:v:46:y:2017:i:c:p:97-109 is not listed on IDEAS

    More about this item

    Keywords

    INTERNATIONAL TRADE;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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