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Does Growth Encourage Factor Price Equalization?

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  • Deardorff, Alan V

Abstract

This paper first notes the importance of "one-cone" versus "multi-cone" equilibria in the Heckscher-Ohlin model of international trade, then asks whether economic growth in neoclassical growth models leads toward one or the other. The one-cone equilibrium arises with internationally similar factor endowments. It has a single set (cone) of relative factor endowments, within which countries diversify and have global factor price equalization (FPE) under free trade. The multi-cone equilibrium arises with larger factor endowment differences. It has FPE within cones, but not between them. The two configurations differ in important ways. The paper examines several neoclassical trade-and-growth models, distinguished by their assumptions about saving, asking whether factor endowments converge into a single cone. None of the models suggests convergence, while some strongly imply that countries will end up in different cones. This suggests a preference for the multi-cone version of the model. Copyright 2001 by Blackwell Publishing Ltd

Suggested Citation

  • Deardorff, Alan V, 2001. "Does Growth Encourage Factor Price Equalization?," Review of Development Economics, Wiley Blackwell, vol. 5(2), pages 169-181, June.
    • Handle: RePEc:bla:rdevec:v:5:y:2001:i:2:p:169-81
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    Cited by:

    1. Alan Deardorff, 2001. "Developing country growth and developed country response," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(4), pages 373-392.
    2. Barua, Alokesh & Pant, Manoj, 2014. "Trade and wage inequality: A specific factor model with intermediate goods," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 172-185.
    3. Jin, Yi & Zeng, Zhixiong, 2007. "International Growth Equalization along nonbalanced constant growth paths," Economics Letters, Elsevier, vol. 96(2), pages 245-252, August.
    4. Alokesh Baura & Priyanta Ghosh, 2015. "On Wage Inequality, Trade and Technology: Theory and Empirics," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 15-09, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
    5. Becker, Daniel Thomas & Gundlach, Erich, 2006. "Notes on factor price equality and biased technical change in a two-cone trade model," Thuenen-Series of Applied Economic Theory 68, University of Rostock, Institute of Economics.
    6. Kozo Kiyota, 2014. "Industrial Upgrading in a Multiple-cone Heckscher–Ohlin Model: The Flying Geese Patterns of Industrial Development," Review of Development Economics, Wiley Blackwell, vol. 18(1), pages 177-193, February.
    7. Gundlach, Erich & de Vaal, Albert, 2012. "Technology differences in empirical studies of international trade," Economics Letters, Elsevier, vol. 117(1), pages 18-20.
    8. Daniel Becker & Erich Gundlach, 2005. "Notes on Factor Price Equality and Biased Technological Change in a Two-Cone Trade Model," DEGIT Conference Papers c010_006, DEGIT, Dynamics, Economic Growth, and International Trade.
    9. Lorenzo Rotunno & Adrian Wood, 2015. "Wages and endowments in a globalised world," Economics Papers 2015-W11, Economics Group, Nuffield College, University of Oxford.
    10. An--Chi Tung, 2003. "Beyond Flying Geese: The Expansion of East Asia"s Electronics Trade," German Economic Review, Verein für Socialpolitik, vol. 4(1), pages 35-51, February.
    11. Xu, Yun & Ouyang, Alice Y., 2017. "Tariffs, relative prices and wage inequality: Evidence from China," China Economic Review, Elsevier, vol. 46(C), pages 97-109.

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