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General Trade Equilibrium of Integrated World Economy

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  • Guo, Baoping

Abstract

The price-trade equilibrium as a central task of international economics is not fulfilled yet, even for the simplest 2x2x2 Heckscher-Ohlin model, due to its complexities. This paper explored the equilibrium by a simple geometrical derivation within the IWE. The study demonstrated that the endogenous factor price equalized is the function of world factor endowments and it has four important features: (i) it makes sure that countries participating in free trade gain from trade. (ii) it is the Dixit-Norman price that remains the same when the allocation of factor endowments changes within the IWE box. The FPE is unique for a giving IWE problem. (iii) the price-trade equilibrium displays the Heckscher-Ohlin theorem directly. (iv) the relative factor price (wage/rental ratio) is not related to technologies. The study also demonstrated the equilibrium relationship for the model with the context of two factors, two commodities, and multiple countries. The new economic logic from this the equilibrium is that world factor endowments determine world price (common commodity price and factor price).

Suggested Citation

  • Guo, Baoping, 2015. "General Trade Equilibrium of Integrated World Economy," MPRA Paper 94996, University Library of Munich, Germany, revised Feb 2019.
    • Handle: RePEc:pra:mprapa:94996
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    References listed on IDEAS

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    1. Daniel Bernhofen & Rod Falvey & David Greenaway & Udo Kreickemeier (ed.), 2013. "Palgrave Handbook of International Trade," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-30531-1, October.
    2. Ronald W. Jones, 2018. "The Structure of Simple General Equilibrium Models," World Scientific Book Chapters, in: International Trade Theory and Competitive Models Features, Values, and Criticisms, chapter 4, pages 61-84, World Scientific Publishing Co. Pte. Ltd..
    3. Alan V. Deardorff, 2011. "The possibility of factor price equalization, revisited," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 15, pages 155-163, World Scientific Publishing Co. Pte. Ltd..
    4. Alan Woodland, 2013. "General Equilibrium Trade Theory," Palgrave Macmillan Books, in: Daniel Bernhofen & Rod Falvey & David Greenaway & Udo Kreickemeier (ed.), Palgrave Handbook of International Trade, chapter 3, pages 39-87, Palgrave Macmillan.
    5. Chipman, John S, 1969. "Factor Price Equalization and the Stolper-Samuelson Theorem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(3), pages 399-406, October.
    6. Avinash Dixit, 2012. "Paul Samuelson's Legacy," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 1-31, July.
    7. Baoping Guo, 2005. "Endogenous Factor-Commodity Price Structure by Factor Endowments," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 11(4), pages 484-484, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Factor content of trade; H-O model; trade; factor price equalization; Heckscher-Ohlin; General equilibrium of trade; Integrated World Equilibrium; IWE;
    All these keywords.

    JEL classification:

    • A2 - General Economics and Teaching - - Economic Education and Teaching of Economics
    • A23 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Graduate
    • F1 - International Economics - - Trade
    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration

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