IDEAS home Printed from https://ideas.repec.org/a/fep/journl/v22y2009i1p9-20.html
   My bibliography  Save this article

Factor Supply Changes in Small Open Economies: Rybczynski Derivatives under Increasing Marginal Costs

Author

Listed:
  • Andreas Pfingsten

    (University of Münster, Department of Banking)

  • Reiner Wolff

    (University of Fribourg, Department of Quantitative Economics)

Abstract

We discuss the validity of Rybczynski’s theorem under increasing marginal costs within firms or industries. In particular, we show that an extra supply of any factor may lead to an expansion of all sector outputs if at least one sector permits input substitution. We provide a corresponding necessary and sufficient condition. This condition can even be satisfied when the equilibrium is Walrasian and Marshallian stable. Our findings are also robust with respect to aggregate improvements in total factor productivity which raise the economy’s outputs beyond private returns.

Suggested Citation

  • Andreas Pfingsten & Reiner Wolff, 2009. "Factor Supply Changes in Small Open Economies: Rybczynski Derivatives under Increasing Marginal Costs," Finnish Economic Papers, Finnish Economic Association, vol. 22(1), pages 9-20, Spring.
    • Handle: RePEc:fep:journl:v:22:y:2009:i:1:p:9-20
    as

    Download full text from publisher

    File URL: http://www.taloustieteellinenyhdistys.fi/images/stories/fep/fep0901_2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Basu, Susanto & Fernald, John G., 1995. "Are apparent productive spillovers a figment of specification error?," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 165-188, August.
    3. Ruffin, Roy J., 1981. "Trade and factor movements with three factors and two goods," Economics Letters, Elsevier, vol. 7(2), pages 177-182.
    4. Caballero, Ricardo J. & Lyons, Richard K., 1992. "External effects in U.S. procyclical productivity," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 209-225, April.
    5. Chang, Winston W, 1979. "Some Theorems of Trade and General Equilibrium with Many Goods and Factors," Econometrica, Econometric Society, vol. 47(3), pages 709-726, May.
    6. Charles Blackorby & William Schworm & Anthony Venables, 1993. "Necessary and Sufficient Conditions for Factor Price Equalization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(2), pages 413-434.
    7. Panagariya, Arvind, 1980. "Variable returns to scale in general equilibrium theory once again," Journal of International Economics, Elsevier, vol. 10(4), pages 499-526, November.
    8. Horst Herberg & Murray C. Kemp, 1969. "Some Implications of Variable Returns to Scale," Canadian Journal of Economics, Canadian Economics Association, vol. 2(3), pages 403-415, August.
    9. Paul A. Samuelson, 1953. "Prices of Factors and Goods in General Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 21(1), pages 1-20.
    10. Ide, Toyonari & Takayama, Akira, 1988. "Scale economies, perverse comparative statics results, the Marshallian stability and the long-run equilibrium for a small open economy," Economics Letters, Elsevier, vol. 27(3), pages 257-263.
    11. Jones, Ronald W & Scheinkman, Jose A, 1977. "The Relevance of the Two-Sector Production Model in Trade Theory," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 909-935, October.
    12. Mayer, Wolfgang, 1974. "Variable Returns to Scale in General Equilibrium Theory: A Comment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(1), pages 225-235, February.
    13. Michael Benarroch, 1997. "Returns to Scale in Canadian Manufacturing: An Interprovincial Comparison," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1083-1103, November.
    14. Oulton, Nicholas, 1996. "Increasing Returns and Externalities in UK Manufacturing: Myth or Reality?," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 99-113, March.
    15. Harrigan, James, 1995. "Factor endowments and the international location of production: Econometric evidence for the OECD, 1970-1985," Journal of International Economics, Elsevier, vol. 39(1-2), pages 123-141, August.
    16. Diewert, W E & Woodland, A D, 1977. "Frank Knight's Theorem in Linear Programming Revisited," Econometrica, Econometric Society, vol. 45(2), pages 375-398, March.
    17. repec:bla:scandj:v:85:y:1983:i:4:p:531-40 is not listed on IDEAS
    18. Lindstrom, Tomas, 2000. "External Economies in Procyclical Productivity: How Important Are They?," Journal of Economic Growth, Springer, vol. 5(2), pages 163-184, June.
    19. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-283, April.
    20. repec:bla:scandj:v:101:y:1999:i:4:p:515-32 is not listed on IDEAS
    21. Jones, Ronald W. & Easton, Stephen T., 1983. "Factor intensities and factor substitution in general equilibrium," Journal of International Economics, Elsevier, vol. 15(1-2), pages 65-99, August.
    22. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 9(1), pages 58-73.
    23. Ide, Toyonari & Takayama, Akira, 1990. "Marshallian stability and long-run equilibrium in the theory of international trade with factor market distortions and variable returns to scale," Economics Letters, Elsevier, vol. 33(2), pages 101-108, June.
    24. Caballero, Ricardo J. & Lyons, Richard K., 1990. "Internal versus external economies in European industry," European Economic Review, Elsevier, vol. 34(4), pages 805-826, June.
    25. James M. Buchanan & Yong J. Yoon, 1999. "Generalized Increasing Returns, Euler's Theorem, and Competitive Equilibrium," History of Political Economy, Duke University Press, vol. 31(3), pages 511-523, Fall.
    26. Burnside, Craig, 1996. "Production function regressions, returns to scale, and externalities," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 177-201, April.
    27. Jai-Young Choi, 1999. "Factor Growth, Urban Unemployment and Welfare Under Variable Returns to Scale," International Economic Journal, Taylor & Francis Journals, vol. 13(4), pages 17-34.
    28. Jota Ishikawa, 1994. "Revisiting the Stolper-Samuelson and Rybczynski Theorems with Production Externalities," Canadian Journal of Economics, Canadian Economics Association, vol. 27(1), pages 101-111, February.
    29. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bilancini, Ennio & D'Alessandro, Simone, 2012. "Long-run welfare under externalities in consumption, leisure, and production: A case for happy degrowth vs. unhappy growth," Ecological Economics, Elsevier, vol. 84(C), pages 194-205.
    2. Lindström, Tomas, 1999. "External Economies at the Firm Level: Evidence from Swedish Manufacturing," Working Paper Series 89, Sveriges Riksbank (Central Bank of Sweden).
    3. Takao Asano & Akihisa Shibata & Masanori Yokoo, 2024. "Technology choice, externalities in production, and a chaotic middle-income trap," Journal of Economics, Springer, vol. 141(1), pages 29-56, January.
    4. Junius, Karsten, 1997. "Economies of scale: A survey of the empirical literature," Kiel Working Papers 813, Kiel Institute for the World Economy (IfW Kiel).
    5. Liu, Wen-Fang & Turnovsky, Stephen J., 2005. "Consumption externalities, production externalities, and long-run macroeconomic efficiency," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1097-1129, June.
    6. Driver, Ciaran & Temple, Paul & Urga, Giovanni, 2006. "Identifying externalities in UK manufacturing using direct estimation of an average cost function," Economics Letters, Elsevier, vol. 92(2), pages 228-233, August.
    7. Rosina Moreno & Enrique López-Bazo & Esther Vayá & Manuel Artís, 2004. "External Effects and Cost of Production," Advances in Spatial Science, in: Luc Anselin & Raymond J. G. M. Florax & Sergio J. Rey (ed.), Advances in Spatial Econometrics, chapter 14, pages 297-317, Springer.
    8. Turnovsky, Stephen J. & Monteiro, Goncalo, 2007. "Consumption externalities, production externalities, and efficient capital accumulation under time non-separable preferences," European Economic Review, Elsevier, vol. 51(2), pages 479-504, February.
    9. Henry Thompson, 1998. "Production with Two Factors and Many Goods Large Firms in a Small Open Economy," International Economic Journal, Taylor & Francis Journals, vol. 12(2), pages 107-116.
    10. Henry Thompson, 2016. "Tariffs and Wages in Trade Theory," Review of Development Economics, Wiley Blackwell, vol. 20(2), pages 399-405, May.
    11. Maxime Menuet & Alexandru Minea & Patrick Villieu, 2019. "The Peril of Fiscal Rules," Post-Print hal-02314996, HAL.
    12. Kim, Hyeongwoo & Thompson, Henry, 2014. "Wages in a factor proportions model with energy input," Economic Modelling, Elsevier, vol. 36(C), pages 495-501.
    13. Madani, Dorsati H., 2001. "South-South regional integration and industrial growth : the case of the Andean Pact," Policy Research Working Paper Series 2614, The World Bank.
    14. Ethan Ilzetzki, 2024. "Learning by Necessity: Government Demand, Capacity Constraints, and Productivity Growth," American Economic Review, American Economic Association, vol. 114(8), pages 2436-2471, August.
    15. Cooper, Russell W. & Johri, Alok, 1997. "Dynamic complementarities: A quantitative analysis," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 97-119, September.
    16. Sharon G. Harrison, 2003. "Returns to Scale and Externalities in the Consumption and Investment Sectors," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 963-976, October.
    17. Benhabib, Jess, 1998. "Introduction to Sunspots in Macroeconomics," Journal of Economic Theory, Elsevier, vol. 81(1), pages 1-6, July.
    18. Thompson, Henry & Toledo, Hugo, 2010. "Labor skills and factor proportions trade in the gulf cooperation council," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 407-411, June.
    19. Stephanie Schmitt-Grohe, 2000. "Endogenous Business Cycles and the Dynamics of Output, Hours, and Consumption," American Economic Review, American Economic Association, vol. 90(5), pages 1136-1159, December.
    20. Modesto, Leonor & Lloyd-Braga, Teresa & Coimbra, Rui, 2002. "Endogenous Growth Fluctuations in Unionised Economy with Productive Externalities," CEPR Discussion Papers 3230, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fep:journl:v:22:y:2009:i:1:p:9-20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Editorial Secretary The email address of this maintainer does not seem to be valid anymore. Please ask Editorial Secretary to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/talouea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.