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Market-dependent production set


  • Egbert, Henrik
  • Naqvi, Nadeem


A country’s production possibility frontier or PPF is defined as the boundary of its economy’s production set in the net output space for a given technology and fixed quantities of primary factors of production. In general equilibrium theory, exogenous changes in technology or primary-factor supplies alter equilibrium prices; however, government-policy induced domestic relative commodity price changes do not alter the shape of an economy’s production set. We show that, under international capital mobility, which is empirically significant, the shape of a country’s production set does, in fact, depend on market forces and this shape can be manipulated by government policy.

Suggested Citation

  • Egbert, Henrik & Naqvi, Nadeem, 2011. "Market-dependent production set," MPRA Paper 33829, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:33829

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    References listed on IDEAS

    1. Vandana Chandra & Nadeem Naqvi, 1997. "Protection and the Shadow Price of Foreign Exchange with Increasing Returns and International Capital Mobility," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 959-967, November.
    2. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    3. Alan Blinder, 2010. "Teaching Macro Principles after the Financial Crisis," The Journal of Economic Education, Taylor & Francis Journals, vol. 41(4), pages 385-390, September.
    4. David Franck, 1999. "Tariff and Quota Reform with International Capital Mobility," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 132-143, July.
    5. Javed Younas, 2011. "Role of foreign direct investment in estimating capital mobility: a reappraisal of Feldstein-Horioka puzzle," Applied Economics Letters, Taylor & Francis Journals, vol. 18(12), pages 1133-1137.
    6. J. Peter Neary, 1995. "Factor Mobility and International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 4-23, November.
    7. Neary, Peter & Ruane, Frances P, 1988. "International Capital Mobility, Shadow Prices, and the Cost of Protection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 571-585, November.
    8. Lal, Anil K., 1995. "Increasing returns, urban unemployment, and international capital mobility: A trade policy analysis," Journal of Development Economics, Elsevier, vol. 46(1), pages 181-193, February.
    9. Emily J. Blanchard, 2009. "Trade taxes and international investment," Canadian Journal of Economics, Canadian Economics Association, vol. 42(3), pages 882-899, August.
    10. J. Peter Neary, 1985. "International Factor Mobility, Minimum Wage Rates, and Factor-Price Equalization: A Synthesis," The Quarterly Journal of Economics, Oxford University Press, vol. 100(3), pages 551-570.
    11. Peter Neary, 1988. "Tariffs, Quotas, and Voluntary Export Restraints with and without Internationally Mobile Capital," Canadian Journal of Economics, Canadian Economics Association, vol. 21(4), pages 714-735, November.
    12. Trisha Bezmen, 2006. "Foreign Aid under Quantitative Restrictions: Welfare Effects and International Factor Mobility," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 709-721, September.
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    Cited by:

    1. Carolin V. Schürg & Nadeem Naqvi, 2011. "Efficiency-wage Hypothesis and the Operational Production Pattern," MAGKS Papers on Economics 201146, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

    More about this item


    general equilibrium; production possibility frontier; production set; international capital mobility; economic policy;

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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