Chapter 8 Comparative Statics in a Two-Factor Multi-Commodity Model without Factor Price Equalization

Siu-kee Wong

A chapter in Contemporary and Emerging Issues in Trade Theory and Policy, 2008, pp 141-162 from Emerald Group Publishing Limited

Abstract: When the factor endowments of two trading countries do not lie in the same diversification cone, trade in commodities may not reduce the international factor return differentials. This chapter specifies some conditions of the demand function in a two-factor, infinite-good model that guarantee partial factor price equalization. The wage-rental ratios of two trading countries are convergent if goods farther apart are poorer substitutes than goods closer together in the factor-intensity ranking. This generalizes the result in the literature, which is usually obtained under the assumption of Cobb–Douglas utility and production functions.

Keywords: Factor price equalization; comparative statics; factor-intensity ranking; infinite-good model (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eme:fegzzz:s1574-8715(08)04008-6

DOI: 10.1016/S1574-8715(08)04008-6

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