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Consumption efficiency hypothesis and the HOS model: Some counterintuitive results

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  • Chaudhuri, Sarbajit
  • Banerjee, Dibyendu

Abstract

We show how accommodation of the consumption efficiency hypothesis can explain the existence of involuntary unemployment in the two-by-two Heckscher-Ohlin-Samuelson (HOS) model. Although the workers consume both the commodities their nutritional efficiency depends on the consumption of one commodity only. An increase in the relative price of the capital-intensive (labour-intensive) good raises (lowers) the effective employment in the economy. The effects of commodity price changes on the output levels of the two sectors might be perverse. These results are different from the standard HOS results.

Suggested Citation

  • Chaudhuri, Sarbajit & Banerjee, Dibyendu, 2007. "Consumption efficiency hypothesis and the HOS model: Some counterintuitive results," MPRA Paper 5325, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:5325
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    References listed on IDEAS

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    1. Dasgupta, Partha & Ray, Debraj, 1986. "Inequality as a Determinant of Malnutrition and Unemployment: Theory," Economic Journal, Royal Economic Society, vol. 96(384), pages 1011-1034, December.
    2. Harvey Leibenstein, 1958. "Underemployment in Backward Economies: Some Additional Notes," Journal of Political Economy, University of Chicago Press, vol. 66, pages 256-256.
    3. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557-557.
    4. Bose, Gautam, 1996. "Agrarian efficiency wages in a dual economy," Journal of Development Economics, Elsevier, vol. 49(2), pages 371-386, May.
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    Cited by:

    1. Dwibedi, Jayanta & Chaudhuri, Sarbajit, 2011. "Poverty alleviation programs, FDI-led growth and child labour under agricultural dualism," MPRA Paper 29997, University Library of Munich, Germany.
    2. Chaudhuri, Sarbajit, 2011. "Labor market reform and incidence of child labor in a developing economy," Economic Modelling, Elsevier, vol. 28(4), pages 1923-1930, July.
    3. Chaudhuri, Sarbajit, 2010. "Economic recession, demand constraint and labour markets in a developing economy," MPRA Paper 27433, University Library of Munich, Germany.
    4. Gupta, Manash Ranjan & Dutta, Priya Brata, 2011. "Skilled-unskilled wage inequality and unemployment: A general equilibrium analysis," Economic Modelling, Elsevier, vol. 28(4), pages 1977-1983, July.

    More about this item

    Keywords

    Consumption efficiency hypothesis; General equilibrium; Heckscher-Ohlin-Samuelson model; Effective employment; Output composition;

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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