Factor Price Equality and Biased Technical Change in a Two‐Cone Trade Model

Daniel Becker and Erich Gundlach

Review of Development Economics, 2007, vol. 11, issue 4, 685-698

Abstract: We reconsider the effects of long‐run economic growth on relative factor prices across cones of specialization. We model economic growth as exogenous technical change. Allowing for capital biased technical change with a sector bias and for endogenous commodity prices, we find that economic growth may increase or decrease factor price differences across cones. For a neutral demand side and capital biased growth in the most capital intensive sector, we find that economic growth encourages less factor price diversity across cones.

Date: 2007
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