An interest rate and factor price equalization theorem with nontraded commodities

Abstract

The model under consideration consists of m pure consumption goods, n capital goods, and h ≦ m primary factors of production in long-run time-phased equilibrium. Two alternative capital intensity conditions are defined in terms of physical unit input coefficients which suffice for equalization of the interest rate, all capital good prices, and all primary factor prices, provided only there is positive trade in every consumption good and in at least one capital good. If the capital intensity conditions hold at all factor prices, the result remains valid even if trading regions have a technology consisting of neoclassical production functions.