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- Title
This Side of Paradox, or, in Defense of the Correspondence Principle: A Reply to Herberg and Kemp.
- Authors
Neary, J. Peter
- Abstract
The article discusses market economics. It has been demonstrated that under a class of economically plausible assumptions about dynamic adjustment,a number of comparative static paradoxes which have attracted attention in the literature on factor-market distortions are associated with unstable equilibria. This association has been shown to hold in both the two-sector Heckscher-Ohlin model of a small, open economy producing two traded goods, and the two-sector model with commodity prices determined endogenously. By a standard application of Samuelson's Correspondence Principle, these paradoxes can effectively be ignored since they will almost never be observed in either model. The stability conditions for the two models are different, but in attaching primacy to stability of one model rather than the other, the most applications of the Correspondence Principle can be questioned. The essence of this principle is to make explicit the process by which a particular comparative static result does (or, in this case, does not) come about, on the grounds that if such a result is to be of economic, it must refer to a specific temporal or causal sequence.
- Subjects
HECKSCHER-Ohlin principle; INTERNATIONAL trade; ENDOGENOUS growth (Economics); COMPARATIVE advantage (International trade); ECONOMETRIC models; ECONOMIC equilibrium; SUPPLY &; demand; ECONOMIC stabilization
- Publication
American Economic Review, 1980, Vol 70, Issue 4, p815
- ISSN
0002-8282
- Publication type
Article