Factor Returns and Circular Causality

Haiwen Zhou

MPRA Paper from University Library of Munich, Germany

Abstract: The presence of circular causality in a region through factor returns is studied in a general equilibrium model in which firms producing final products engage in oligopolistic competition. The intermediate input is produced by capital and labor with a constant returns to scale technology. If the degree of increasing returns in the production of final products is sufficiently high, the return to a factor can increase with the amount of this factor. Thus a higher amount of a factor in a region leads to a higher return to this factor and attracts additional amount of this factor to move in. Capital movement and labor movement can be reinforcing. This type of circular causality means that unbalanced regional development can persist over time.

Keywords: Factor return; circular causation; increasing returns; oligopolistic competition; intermediate input (search for similar items in EconPapers)
JEL-codes: O10 R10 (search for similar items in EconPapers)
Date: 2018-05-05
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Published in Southern Economic Journal 3.77(2011): pp. 795-805

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