Factor price equilisation argues that goods trade acts as substitute for factor; ? The increasing demand for capital intensive commodity increase the
This paper examines the status of factor price equalization (FPE) as a scienrific hypothesis Every college :etu&nt af inlemational economics is exposed to
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 extends the technique of integrated equilibrium analysis to con sider a trading world with unemployment due to a wage floor Unlike previous
This paper provides a formal proof of the Factor Price Equalization Theorem within the Heckscher Ohlin model derived by Ronald W Jones in “The Structure of
The Heckscher-Ohlin theorem, for many years one of the most important in international trade theory, states that countries f tend to export commodities
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
This theorem describes how regions can absorb endowment shocks via changes in output mix without any changes in relative regional factor prices Treating U S
The Heckscher-Ohlin Theorem 4 The Factor-Price-Equalization Theorem 5 The Stolper-Samuelson Theorem 6 The Rybczynski Theorem 7 Policy Implications
FULL OR PARTIAL FACTOR PRICE EQUALISATION? The present paper is concerned primarily with one aspect of this theorem-namely, the assertion that, while free
101351_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.
Dr Zafar8
Factor Price Equalisation Theorem
(xiv)Themarginal-physicalproductofeachfactorisdiminishing. (xv)Thetastesareidenticalinthetwocountries.
Dr Zafar9
Factor Price Equalisation Theorem
Thank you
Dr Zafar10