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Capital Utilization and Factor Specificity

Roger Betancourt (), Christopher Clague and Arvind Panagariya ()

Review of Economic Studies, 1985, vol. 52, issue 2, 311-329

Abstract: In this study a model of firm behavior that allows the level of capital utilization to be optimally chosen by cost-minimizing firms is embedded into the standard specific-factors model employed in the international trade literature. The resulting generalization of the specific-factors model provides several new insights. For instance, allowing for variable utilization in either or both sectors gives rise to a greater variety of possible trade patterns than forcing utilization to remain constant. Similarly, international differences in the willingness to work during abnormal hours generate a wider variety of trade patterns than are possible in the standard specific-factors model. Finally, this model allows a reconciliation of the "dual scarcity" explanation of the nineteenth century Anglo-American pattern of trade with the historical evidence on levels of utilization.

Date: 1985
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