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The Simplest Factor Price Non-Equalization When Countries Have Different Productivities

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  • Guo, Baoping

Abstract

This study derived the solution of general trade equilibrium for the 2×2×2 Trefler Hicks-Neutral HOV Model (Trefler, 1993), which incorporates productivities different across countries. This is the first theoretical result of price-trade equilibrium under factor price non-equalization. The non-equalized factor price at the equilibrium is with two useful properties. The first one is that the equilibrium price (world commodity price and two sets of localized factor price) are the functions of world effective factor endowments so that it remains the same when the allocation of equivalent factor endowments changes. The second property is that the equilibrium factor prices ensure gains from trade for countries participating in trade. A new logic explored from this study is that the world effective factor endowments determine world commodity price and local factor rewards of all countries.

Suggested Citation

  • Guo, Baoping, 2019. "The Simplest Factor Price Non-Equalization When Countries Have Different Productivities," MPRA Paper 95015, University Library of Munich, Germany, revised 12 Jul 2019.
    • Handle: RePEc:pra:mprapa:95015
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    References listed on IDEAS

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    6. Fisher, Eric O'N., 2011. "Heckscher-Ohlin theory when countries have different technologies," International Review of Economics & Finance, Elsevier, vol. 20(2), pages 202-210, April.
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    9. 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.
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    11. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-1046, December.
    12. Baoping GUO, 2019. "Trade effects based on general equilibrium," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(618), S), pages 159-168, Spring.
    13. Avinash Dixit, 2012. "Paul Samuelson's Legacy," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 1-31, July.
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    Cited by:

    1. Guo, Baoping, 2015. "Leontief Paradox Explored A New Trade Pattern When Countries Have Different Technologies," MPRA Paper 96929, University Library of Munich, Germany, revised Nov 2019.
    2. Guo, Baoping, 2015. "Heckscher-Ohlin Trade, Leontief Trade, and Factor Conversion Trade When Countries Have Different Technologies," MPRA Paper 95161, University Library of Munich, Germany, revised Jul 2019.

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    More about this item

    Keywords

    Factor content of trade; factor price non-equalization; General equilibrium of trade; Integrated World Equilibrium; IWE;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration

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