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Factor price equalization under joint production: A general equilibrium synthesis

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  • Albert, Max
  • Kohler, Wilhelm K.

Abstract

We investigate how joint production affects the likelihood of factor price equalization (FPE) through trade. Following up on recent contributions by Samuelson (1992) and Jones (1992), we propose to take the relative size of the FPE region of endowment distributions to measure this likelihood. We show that the likelihood (1) may increase even if joint production leads to a decrease of the number of basic production processes, and (2) may decrease even if the number of basic production processes operated in equilibrium is the same as under non-joint production. Moreover, we reinterpret the formal arguments and apply them to a comparison between trade in intermediate versus trade in finished products. Our analysis throws light on the basic mechanism at work. It shows that goods trade and factor movements can be complements: Further integration of product markets can destroy FPE and create factor-price differences, thereby generating factor movements.

Suggested Citation

  • Albert, Max & Kohler, Wilhelm K., 1995. "Factor price equalization under joint production: A general equilibrium synthesis," Discussion Papers, Series II 268, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    • Handle: RePEc:zbw:kondp2:268
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    1. Chang, Winston W. & Ethier, Wilfred J. & Kemp, Murray C., 1980. "The theorems of international trade with joint production," Journal of International Economics, Elsevier, vol. 10(3), pages 377-394, August.
    2. Paul A. Samuelson, 1953. "Prices of Factors and Goods in General Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 21(1), pages 1-20.
    3. Green, Jerry R. & Scheinkman, Josè Alexandre (ed.), 1979. "General Equilibrium, Growth, and Trade," Elsevier Monographs, Elsevier, edition 1, number 9780122987502.
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    5. Samuelson, Paul A, 1992. "Factor-Price Equalization by Trade in Joint and Non-joint Production," Review of International Economics, Wiley Blackwell, vol. 1(1), pages 1-9, November.
    6. Paul A. Samuelson, 1962. "Parable and Realism in Capital Theory: The Surrogate Production Function," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 29(3), pages 193-206.
    7. Jones, Ronald W, 1992. "Jointness in Production and Factor-Price Equalization," Review of International Economics, Wiley Blackwell, vol. 1(1), pages 10-18, November.
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