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Factor Supply Changes in Small Open Economies: Rybczynski Derivatives under Increasing Marginal Costs

Andreas Pfingsten () and Reiner Wolff ()
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Andreas Pfingsten: University of Münster, Department of Banking
Reiner Wolff: University of Fribourg, Department of Quantitative Economics

Finnish Economic Papers, 2009, vol. 22, issue 1, 9-20

Abstract: We discuss the validity of Rybczynski’s theorem under increasing marginal costs within firms or industries. In particular, we show that an extra supply of any factor may lead to an expansion of all sector outputs if at least one sector permits input substitution. We provide a corresponding necessary and sufficient condition. This condition can even be satisfied when the equilibrium is Walrasian and Marshallian stable. Our findings are also robust with respect to aggregate improvements in total factor productivity which raise the economy’s outputs beyond private returns.

JEL-codes: D50 F11 (search for similar items in EconPapers)
Date: 2009
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