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International-price and terms-of-trade effects on factor productivity: international comparisons

Author

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  • Claudio Sfreddo

    (CREA Institute of Applied Macroeconomics)

Abstract

In this paper, we present a technique to decompose changes in factor prices into the contribution of major determinants, namely movements in domestic and international prices, changes in capital and labour quantities, and technological progress. This is done in an open-economy framework. While building on the same principles as GDP growth accounting, our technique considers the specific form of factor demand functions when these are derived from a GDP Translog function. We also break down the combined effect of changes in export and import (i.e. international) prices into a pure terms-of-trade effect and a residual international-price effect. This distinction is important, and is illustrated by the fact that an equiproportional change in international prices, while not affecting terms of trade, can trigger changes in factor productivity and therefore impact on workers' and capital owners' welfare. Decomposition of movements in factor productivity is implemented empirically using data from ten OECD countries.

Suggested Citation

  • Claudio Sfreddo, 2004. "International-price and terms-of-trade effects on factor productivity: international comparisons," International Trade 0408002, EconWPA, revised 07 Sep 2004.
  • Handle: RePEc:wpa:wuwpit:0408002
    Note: Type of Document - pdf; pages: 40
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    References listed on IDEAS

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    1. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    2. Kohli, Ulrich, 2004. "Real GDP, real domestic income, and terms-of-trade changes," Journal of International Economics, Elsevier, vol. 62(1), pages 83-106, January.
    3. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
    4. Ulrich R. Kohli, 1978. "A Gross National Product Function and the Derived Demand for Imports and Supply of Exports," Canadian Journal of Economics, Canadian Economics Association, vol. 11(2), pages 167-182, May.
    5. Burgess, David F., 1974. "Production theory and the derived demand for imports," Journal of International Economics, Elsevier, vol. 4(2), pages 103-117, May.
    6. Diewart, W Erwin & Morrison, Catherine J, 1986. "Adjusting Output and Productivity Indexes for Changes in the Terms of Trade," Economic Journal, Royal Economic Society, vol. 96(383), pages 659-679, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    factor productivity; GDP functions; international prices; terms of trade;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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