World Equalized Factor Price and Integrated World Trade Space

Guo, Baoping (2018): World Equalized Factor Price and Integrated World Trade Space.

Abstract

This study derived a general equilibrium for the Heckscher-Ohlin model at the context of higher dimensions. The equalized factor price at the equilibrium is the Dixit-Norman price, i.e. that the world price will remain the same when allocations of factor endowments change within the IWE box . The study explored a way to show the legacy of comparative advantages on the Heckscher-Ohlin model and demonstrated that the equalized factor price and world commodity price at the equilibrium ensured that the countries participating free trade gain from trade. The solution analytically addresses the Heckscher-Ohlin theorem with trade volume, the Factor-Price Equalization theorem with price solution, and comparative advantages with gains from trade. It shows the hided important logic in the IWE and the Heckscher-Ohlin model as that world factor endowments determine world price.

• Item Type: MPRA Paper
• Language: English
• Keywords: Factor Price Equalization, Integrated World Equilibrium, Heckscher-Ohlin Model, General Equilibrium, Cone of Commodity Price.
• Subjects: F - International Economics > F1 - Trade; F - International Economics > F1 - Trade > F10 - General; F - International Economics > F1 - Trade > F15 - Economic Integration

References

McKenzie, L. (1987), General Equilibrium, The New Palqrave, A dictionary of economics, 1987, v. 2, pp 498-512.

Chipman, J. S. (1966), “A Survey of the Theory of International Trade: Part 3, The Modern Theory”, Econometrica 34 (1966): 18-76.

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

Deardorff, A. V. (1979), Weak Links in the chain of comparative advantage, Journal of international economics. IX, 197-209.

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

Etheir, W. (1984). Higher dimensional issues in the trade theory, Ch33 in handbook of international Economics, Vol. 1, ed. R. Jones and P. Kenen, Amsterdam: North-Holland.

Dixit, A.K. and V. Norman (1980) Theory of International Trade, J. Nisbert/Cambridge University Press. Helpman, E. (1984), The Factor Content of Foreign Trade, Economic Journal, XCIV, 84-94.

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

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. (2018), Equalized Factor Price and Integrated World Equilibrium, working paper, Munich Personal RePEc Archive, https://mpra.ub.uni-muenchen.de/92051/

Gale, D. and Nikaido, H. 1965. The jacobian matrix and the global univalence of mappings. Mathematishe Annalen 159, 81-93.

Jones, Ronald (1965), “The Structure of Simple General Equilibrium Models,” Journal of Political Economy 73 (1965): 557-572.

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. (1949), International factor price equalization once again, The Economic Journal 59, 181-197.

Schott, P. (2003) One Size fits all? Heckscher-Ohlin specification in global production, American Economic Review, XCIII, 686-708.

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. (1998), “The Structure of Factor Content Predictions,” University of Toronto, manuscript.

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.