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Factor Returns and Circular Causality

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  • Zhou, Haiwen

Abstract

The presence of circular causality in a region through factor returns is studied in a general equilibrium model in which firms producing final products engage in oligopolistic competition. The intermediate input is produced by capital and labor with a constant returns to scale technology. If the degree of increasing returns in the production of final products is sufficiently high, the return to a factor can increase with the amount of this factor. Thus a higher amount of a factor in a region leads to a higher return to this factor and attracts additional amount of this factor to move in. Capital movement and labor movement can be reinforcing. This type of circular causality means that unbalanced regional development can persist over time.

Suggested Citation

  • Zhou, Haiwen, 2018. "Factor Returns and Circular Causality," MPRA Paper 86533, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:86533
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    More about this item

    Keywords

    Factor return; circular causation; increasing returns; oligopolistic competition; intermediate input;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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