Factor price equilisation argues that goods trade acts as substitute for factor; ? The increasing demand for capital intensive commodity increase the
Factor Price Equalisation Theorem ? Factor Prices under Autarky: ? In figure 1, ? is contract curve for country I and ? ? is contract curve
This paper extends the technique of integrated equilibrium analysis to con sider a trading world with unemployment due to a wage floor Unlike previous
This paper examines the status of factor price equalization (FPE) as a The formal proof of FPE is based on a neoclassical production structure with two
This paper examines the status of factor price equalization (FPE) as a scienrific hypothesis Every college :etu&nt af inlemational economics is exposed to
factor price equalization theorem was the first rigorous proof that trade trading entities would equalize factor prices has never been open to
In view of constant returns assumption, Ram Singh: (DSE) Factor Price Equalization Lecture 13 2 / 16 Page 3 International Trade: Basic Set-up II the
FULL OR PARTIAL FACTOR PRICE EQUALISATION? The present paper is concerned primarily with one aspect of this theorem-namely, the assertion that, while free
theorem, (2) to expand upon its intuitive demonstration, (3) to 1 "International Trade and the Equalisation of Factor Prices," EcoNoMIc JoURNAL, Vol
The Factor Price Equalization Theorem states that under the assumptions, free trade will make factor prices equal in the participating countries Since the
101348_68_FactorPriceEqualisationTheorem1.pdf
Factor Price Equalisation
Theorem
Part 1
Dr Zafar1
Factor Price Equalisation Theorem
Thefactorpriceequalisationtheoryisanimportant
corollary/outcomeoftheH-Otheoryoftrade. Freemovementoffactorswouldleadtocompletefactorprice equalizationlikethatofgoods.
However,intheabsencefactormovement(assumedbytrade
theory),whatwouldhappentofactorpricesisexplainedbythis theory.
Dr Zafar2
Factor Price Equalisation Theorem
Heckscher-Internationaltradeincommoditiesasasubstituteforthe internationalmobilityoffactors leadingtoacompleteequalisationofthecostsorfactorprices. Ohlin,ontheotherhand,recognisedonlyanincompleteorpartial equalisationofpricesoffactors.
Dr Zafar3
Factor Price Equalisation Theorem
Samuleson(1948)andLerner(1953)-possibilityofacompleteequalisationof factorprices. Factorpriceequilisationarguesthatgoodstradeactsassubstituteforfactor; Theincreasingdemandforcapitalintensivecommodityincreasethedemandfor capitalandmakecapitalscareincapitalabundantcountryandraiseitsprice;
Dr Zafar4
Factor Price Equalisation Theorem
Whilesupplyofcapitalintensiveproductsbycapitalabundantcountry relievesthepressureoncapitalincapitalscarecountryandreducetheprice ofcapital. Hence,goodsmobilityinabsenceoffactormobilitybringsthefactorprice towardsequalizationbetweentradingcountries.
Dr Zafar5
Factor Price Equalisation Theorem
Assumptions:
(i)Therearetwocountries,sayIandII. (ii)Thesecountriesproducetwocommodities,sayAandB. (iii)Theproductionofthesecommoditiesrequiresonlytwofactorsofproduction labourandcapital. (iv)Thereisfreecompetitionbothintheproductandlabourmarkets. (v)Thereisanabsenceoftariffandtransportcosts.
Dr Zafar6
Factor Price Equalisation Theorem
(vi)Theproductionfunctionrelatedtoeachcommodityisidenticalinbothcountriesandare homogeneousofdegreefirst.Itimpliestheproductionisgovernedbyconstantreturnsof scale. (vii)Thefactor-intensitiesaredifferentforthetwocommodities.Forinstance,the commodityAislabour-intensive,whilecommodityBiscapital-intensive.Itmeansthere isanabsenceofreversaloffactorintensity. (viii)Capitalandlabourarequalitativelyidenticalinthetwocountries.Dr Zafar7
Factor Price Equalisation Theorem
(ix)Theavailabilityoffactorsisquantitativelydifferentinthetwocountries.ThecountryI issupposedtobecapital-abundantwhereascountryIIislabour-abundant. (x)Thereisabsenceofcompletespecialisation.Itmeansboththecountriescontinueto produceboththecommoditiesevenaftertradetakesplacebetweenthem. (xi)Thefactorsuppliesarefixedinthetwocountries. (xii)Ineachcountry,thereisfullemploymentofboththefactors. (xiii)Thereisnomobilityoffactorsbetweenthecountries.
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Factor Price Equalisation Theorem
(xiv)Themarginal-physicalproductofeachfactorisdiminishing. (xv)Thetastesareidenticalinthetwocountries.
Dr Zafar9
Factor Price Equalisation Theorem
Thank you
Dr Zafar10