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- Title
Factor Substitution and Relative Factor Prices.
- Authors
Ban, Hikari
- Abstract
This paper examines the effects of factor endowments on factor prices in a three-factor, two-commodity general-equilibrium model with endogenous commodity demand and prices. Unlike the conventional small open-economy model that assumes constant commodity prices, factor substitution influences the direction of these effects. When a factor endowment increases, complementarity with the expanding factor benefits an unchanged factor, but substitutability harms it. If the unchanged factors are complements, there is a possibility of a rise in the expanding factor's price. A comparison of this closed-economy model with the small open-economy model reveals the role of international trade, which dampens the effect on the expanding factor's price.
- Subjects
FACTOR proportions; ENDOGENOUS growth (Economics); ECONOMIC demand; PRICES; INTERNATIONAL trade
- Publication
Review of International Economics, 2010, Vol 18, Issue 3, p562
- ISSN
0965-7576
- Publication type
Article
- DOI
10.1111/j.1467-9396.2010.00889.x