The Simplest Factor Price Non-Equalization When Countries Have Different Productivities

Baoping Guo

MPRA Paper from University Library of Munich, Germany

Abstract: This study derived the solution of general trade equilibrium for the 2×2×2 Trefler Hicks-Neutral HOV Model (Trefler, 1993), which incorporates productivities different across countries. This is the first theoretical result of price-trade equilibrium under factor price non-equalization. The non-equalized factor price at the equilibrium is with two useful properties. The first one is that the equilibrium price (world commodity price and two sets of localized factor price) are the functions of world effective factor endowments so that it remains the same when the allocation of equivalent factor endowments changes. The second property is that the equilibrium factor prices ensure gains from trade for countries participating in trade. A new logic explored from this study is that the world effective factor endowments determine world commodity price and local factor rewards of all countries.

Keywords: Factor content of trade; factor price non-equalization; General equilibrium of trade; Integrated World Equilibrium; IWE (search for similar items in EconPapers)
JEL-codes: F10 F15 (search for similar items in EconPapers)
Date: 2019-05-17, Revised 2019-07-12
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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