The Simplest Factor Price Non-Equalization When Countries Have Different Productivities

Guo, Baoping (2019): The Simplest Factor Price Non-Equalization When Countries Have Different Productivities.

Abstract

This study derived the solution of general trade equilibrium for the 2×2×2 Trefler Hicks-Neutral HOV Model (Trefler, 1993), which incorporates productivities different across countries. This is the first theoretical result of price-trade equilibrium under factor price non-equalization. The non-equalized factor price at the equilibrium is with two useful properties. The first one is that the equilibrium price (world commodity price and two sets of localized factor price) are the functions of world effective factor endowments so that it remains the same when the allocation of equivalent factor endowments changes. The second property is that the equilibrium factor prices ensure gains from trade for countries participating in trade. A new logic explored from this study is that the world effective factor endowments determine world commodity price and local factor rewards of all countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Factor content of trade; factor price non-equalization; General equilibrium of trade; Integrated World Equilibrium; IWE
• Subjects: F - International Economics > F1 - Trade > F10 - General; F - International Economics > F1 - Trade > F15 - Economic Integration

References

Chipman, J. S. (1969). Factor price equalization and the Stolper–Samuelson theorem. International Economic Review, 10(3), 399−406.

Deardorff, A. V. (1994) The possibility of factor price equalization revisited, Journal of International Economics, XXXVI, 167-75.

Dixit, A.K. and V. Norman (1980) Theory of International Trade, J. Nisbert/Cambridge University Press.

Dixit, A.K (2012) Paul Samuelson's Legacy, Annual Reviews of Economics, Vol. 4, 2012

Fisher, E. O’N. (2011), “Heckscher-Ohlin Theory When Countries Have Different Technologies.” International Review of Economics and Finance 20 (April 2011), 202-210.

Fisher, E. O’N. and K. G. Marshall. (2011), “The Structure of the American Economy.” Review of International Economics 19 (February 2011), 15-31.

Helpman, E. and P. Krugman (1985), Market Structure and Foreign Trade, Cambridge, MIT Press.

Feenstra, R. C. and A. Taylor (2012), International Economics, second edition. Worth Publishers, New York.

Gale, D., & Nikaido, H. (1965, April). The Jacobian matrix and global univalence of mappings. Mathematische Annalen, 159(2), 81−93.

Guo, B. (2005), Endogenous Factor-Commodity Price Structure by Factor Endowments, International Advances in Economic Research, November 2005, Volume 11, Issue 4, p 484

Guo, B. (2015), General Trade Equlibrium of Integrated World Economy, Available at https://mpra.ub.uni-muenchen.de/94996/ Guo, B. (2018), World Equalized Factor Price and Integrated World Trade Space, Available at https://mpra.ub.uni-muenchen.de/92503/1/MPRA_paper_92503.pdf

Guo, B. (2019) Trade Effects Based on Trade Equilibrium, Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(618), S), pages 159-168, Jones, RW. (1965), “The Structure of Simple General Equilibrium Models,” Journal of Political Economy 73 (1965): 557-572.

Jones, RW. (1983). "International Trade Theory." In eds. EC Brown and RM Solow (1983), 69-103.

Krugman, P. R. (2000) Technology, Trade and Factor Prices, Journal of International Economics, 50 (2000) 51-71

Leamer, E. and J. Levinsohn (1995) ‘International trade theory: the evidence’ in Gene M. Grossman and Kenneth S. Rogoff (eds) Handbook of international economics, Vol. III (New York: Elsevier Science).

Leamer, E. (2000), Whats the use of factor contents? Journal of International Economics 50(1), February.

Leontief, W. (1953), "Domestic Production and Foreign Trade; The American Capital Position Re-Examined". Proceedings of the American Philosophical Society. 97 (4): 332–349.

McKenzie, L.W. (1955), Equality of factor prices in world trade, Econometrica 23, 239-257.

Rassekh, F. and H. Thompson (1993) Factor Price Equalization: Theory and Evidence. Journal of Economic Integration: 1-32

Samuelson, P. A. (1948). International Trade and the Equalization of Factor Prices, Economic Journal, June, pp. 163-184.

Samuelson, P. A. (1949). International Factor-Price Equalization Once Again. Economic Journal 59:181-197. Reprinted in ed. JE Stiglitz (1966), 869-885.

Takayama, A. (1982), “On Theorems of General Competitive Equilibrium of Production and Trade: A Survey of Recent Developments in the Theory of International Trade,” Keio Economic Studies 19 (1982): 1-38. 10

Trefler, D. (1993), "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy 101 (1993), 961-87.

Trefler, D., (1995), “The Case of Missing Trade and Other Mysteries,” American Economic Review, December, 85(5), 1029-1046. Reprinted in Edward E. Leamer, ed. 2001, International Economics, New York: Worth Publishers, 151-175.

Vanek, J. (1968b), The Factor Proportions Theory: the N-Factor Case, Kyklos, 21(23), 749-756.

Woodland, A. (2013), General Equilibrium Trade Theory, Chp. 3, Palgrave Handbook of International Trade, Edited by Bernhofen, D., Falvey, R., Greenaway, D. and U. Kreickemeier, Palgrave Macmillan.