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
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.
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