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Equalized Factor Price and Integrated World Equilibrium

Guo, Baoping (2015): Equalized Factor Price and Integrated World Equilibrium.

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Abstract

This paper derives a general equilibrium of the Heckscher-Ohlin model. The equalized factor price at the equilibrium is just the price that Dixit and Norman (1980) described in their Integrated World Equilibrium (IWE), i.e. that equalized factor price and common commodity price remain the same when the allocation of factor endowments changes within the IWE box. This is the first analytical solution that presents an equalized factor price for the Heckscher-Ohlin model. The study demonstrates that giving an IWE box, there is only one equalized factor price with the property of the IWE price. The equilibrium solution is a joint statement of the Heckscher-Ohlin theorem and the factor-price equalization theorem.

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