Relative Factor Prices Research Articles

The cropland intensive utilisation transition in China: An induced factor substitution perspective

Understanding the transition process of cropland-use intensification can help reconcile the relationship between food demand and ecological conservation. The transition of cropland-use intensification is a trend developing in the continuous reorganisation and optimization of factor inputs with the changes in socio-economics, policies and institutions. From the induced factor substitution perspective, a transition of cropland-use intensification occurs when the agricultural entities adjust the structure of factor inputs in response to changes in the relative prices of production factors. This paper established an analytical framework for identifying the transition of cropland-use intensification and conducted an empirical study based on evidence from China between 1978 and 2019. The empirical study revealed a four-phase transition process of cropland-use intensification in China, named the ‘labour-force-driven intensification’, the ‘yield-increasing-factors-driven intensification’, the ‘labour-saving-factors-driven intensification’, and the ‘innovation-driven intensification’. This paper also investigated the transition trajectory of cropland-use intensification in nine different agricultural zones and explored the influencing factors that contributed to the heterogeneity of the transition trajectory among different zones. Furthermore, this paper discussed the policy initiative to accelerate the transition of cropland-use intensification to the fourth stage to benefit the ecological environment and farmers’ livelihood and ultimately be of great significance in promoting the sustainable development of agriculture in China.

What happened to the workshop of West Africa? Resilience and decline of handicraft textiles in colonial northern Nigeria, 1911–52

AbstractThe Sokoto Caliphate of northern Nigeria was the workshop of West Africa in the pre‐colonial nineteenth century, producing famous blue‐black cloth that reached many markets south of the Sahara as well as across it. Under British colonial rule this large handicraft textile industry was faced with the winds of foreign competition. We rely on a newly digitized set of colonial district reports to measure the impact of trade on northern Nigerian textile manufacturing and find that (contrary to British expectations) areas closer to railway stations were less likely to experience industrial decline. We argue that the resilience of local textiles relied on the low opportunity cost of dry‐season labour. Analysing a piece of tax microdata, we show that a low opportunity cost of labour outside of the rainy season was associated with a higher likelihood of engaging in textile by‐employment. Seasonal changes in relative factor prices were a trap as well as a refuge. Part‐time employment limited specialization and technological innovation, and can help to explain why northern Nigerian textiles eventually declined. Thus, beyond our particular case study, these results contribute to our understanding of the role of seasonality in determining the structure and pace of development of tropical economies.

Парадокс Леонтьєва: використання в умовах повоєнної економки

The Heckscher-Ohlin-Samuelson model provides a mathematical proof of the possibility of equalizing relative and absolute prices of production factors due to international trade, provided certain assumptions are met. Wassily Leontief proved, in practice these assumptions are not followed. Therefore, there is a need to adjust the parameters of the model in the calculations of indicators of value estimation and the use of production factors. The purpose of this research is to study the results of calculating the parameters of Leontief's statistics and to identify their potential application in the conditions of post-war economic recovery of Ukraine. The main research methods were theoretical generalization, economic-statistical analysis, and multivariate linear regression. During the research process, several partial tasks were completed, namely: 1) systematizing the results of empirical tests of the provisions of the Heckscher-Ohlin model in terms of explanations of the reasons for non-compliance with its individual conditions; 2) summarizing the combinations of indicators for the evaluation of parameters of production factors and verifying their relevance to individual tasks of factor testing; 3) formulating recommendations for the application of the Leontief’s statistics in the conditions of the post-war economic recovery of Ukraine. All partial explanations of the Leontief’s paradox can be used to modify the principles of calculating the indicators of production factors. Most often, there is a need to correct the following elements of statistical data: changes in the structure of the economy during the crisis period and as a result of military operations; taking into account the heterogeneity of labor and the need for financing education and training of specialists; different productivity of technologies used in the production of similar goods; the impact of the import tariff and its differentiation by product groups and geographical features; import of capital-intensive raw materials for production of labor-intensive products; use of various methods of factor intensity calculation. In addition to instrumental discrepancies and the imperfection of the calculation methodology, there is a problem with the very concept of representing the dependence of gross output on the structure of production factors. The classical Cobb-Douglas production function and its numerous modifications do not unambiguously solve the question of capital measurement. Moreover, the question of the primacy of the impact of consumption growth on output and the impact of output growth on consumption remains unresolved. The practical significance of the research lies in the fact that in the conditions of post-war economic recovery of Ukraine, most of the assumptions of the Heckscher-Ohlin model are nullified, as the state will have to introduce strict restrictions on the movement of production factors and international trade for some time. This will allow to form real statistics on the use of production factors and, on its basis, to carry out programming of Ukraine's international trade. On the basis of the Heckscher-Ohlin theory and Leontief’s statistics, it is possible to develop economic-mathematical models of the optimal distribution and effective use of production factors among industries. Based on the results of such modeling, a set of measures to restore the demographic potential should be developed in three areas: stimulating re-emigration, creating conditions for increasing the birth rate, and intensifying efforts to attract foreign labor. Attracting foreign capital will be possible if a favorable investment and tax climate is successfully created, corruption is overcome, and judicial reform is implemented. And technologies will come following investments. After the initial stage of economic recovery, programs of macroeconomic programming should be reviewed with a mix of emphasis on optimization of monetary and credit policies. And finally, after the economy recovers to at least the pre-war level, start creating conditions for the development of own technologies and reforming the education system.

Research on the Influential Mechanism of RMB Exchange Rate on China's Export and Import Trade

Exchange rate (ExRate), as an economic lever, plays a role in price conversion in international cross-border trade activities, reflecting the relative prices of international commodity factors, and playing a connecting role in domestic and international markets. This is the most effective way to regulate international economic competition. The issue of the RMB ExRate has always been a focus of widespread attention, and its floating elasticity is gradually expanding. The influence of export trade is also intensifying with ExRate fluctuations. In today's world of economic globalization and regional economic integration, the economic integration between countries is becoming increasingly strong. Foreign trade plays a crucial part in a country's national economy, and the fluctuation of the RMB ExRate in China's foreign trade has a significant influence. ExRate fluctuations are an important factor affecting international trade, and how to respond to the influence of RMB ExRate fluctuations on China's export and import (exim) trade is a problem that we must pay attention to. Therefore, studying the influence of changes in the RMB ExRate on China's export trade has strong theoretical and practical significance. This article analyzes the RMB ExRate and exim trade situation in China in recent years, and then analyzes the influence of RMB ExRate fluctuations on China's exim trade, and proposes corresponding policy recommendations.

Factor prices and induced technical change in the industrial revolution

AbstractUsing historical data for the 1700–1914 period, this paper analyses the nature and direction of technical change in Britain. The evidence in this paper indicates that, over this long period, labour‐saving technology adoption was a major response to changes in relative factor prices, thus supporting the hypothesis that ‘induced innovation’ was a major driver of technical change during the British industrial revolution. Labour saving was made possible and sustained by capital‐augmenting and energy‐augmenting technical change coupled with continuous capital accumulation and abundant energy supplies. This process placed the British economy on a higher capital–labour ratio equilibrium, and was the primary force driving sustained productivity growth, which further raised wages and living standards.

한국 물류산업의 학력별 노동수요 결정요인 분석

When economic growth is advanced, the industrial structure generally changes from manufacturing industry to service industry. Looking at the labor market of each industry in Korea, this phenomenon is clearly evident. In particular, the importance of the logistics industry is highlighted in the Korean industry, which is highly dependent on trade. Statistics confirm that the educational wage discrepancy exists and is deepening in the labor market of the logistics industry. This means that the labour market in this industry has been divided according to educational background. By applying human capital theory, high school graduates or lower were divided into low-educated labor without human capital, and college graduates or higher into high-educated labor with embodied human capital. Under this premise, the three factors (capital, low-educated, high-educated labor) Cobb-Douglas production function was postulated and the analysis on labor demand determinants by educational background, was carried out including output, globalization and neutral technical progress. As a result, the relative prices of production factors did not affect the demand of low-educated labor and high-educated labor in the logistics industry. On the other hand, exogenous changes in the logistics industry, such as output, globalization and technical progress, have a significant impact on the labor market by academic background of the logistics industry. In other words, demand of low-educated labor affects changes more flexibly than demand of high-educated labor. Globalization leads to the increase in demand of high-educated labor, while technical progress leads to the decrease in demand of low-educated labor and the increase in demand of high-educated labor. Based on these estimates, the following policies can be suggested: First, employment stabilization policies for low-educated labor are needed because demand of low-educated labor is more severe due to economic fluctuations. Second, technical advances increase total production by improving productivity, but labor policies are needed in preparation for this because unemployment can occur due to a decrease in low-educational labor demand. Third, globalization causes an increase in demand of high-educated labor, so a human resources training policy necessary for the logistics industry is needed.

Tasks, technology, and factor prices in the neoclassical production sector

This paper introduces tasks into the neoclassical production sector. Competitive firms choose the profit-maximizing amounts of factor-specific tasks that determine their factor demands and output supplies. We show that the effect of factor-augmenting technical change on relative and absolute factor prices can be decomposed into a productivity effect and a task-demand effect of opposite sign. These effects appear since the novel task-based approach distinguishes between the demands for tasks and the demands for factors. This perspective provides a new intuition for the emergence of relative and absolute factor biases and the role of the elasticity of substitution.

Agricultural Subsidies, Relative Prices of Factors and Agricultural Land Transfer

Since the reform and opening up 40 years ago, the scope and scale of agricultural subsidies have been expanding, but the enthusiasm of farmers in agricultural production has not been effectively improved, and agricultural land fragmentation, too small scale and low efficiency of agricultural production have not changed. According to the economic nature of China’s agricultural subsidies, this paper divides the existing agricultural subsidies into three categories: inclusive, capital and incentive, respectively, to study the impact of agricultural subsidies on the relative price of factors and the transfer of agricultural land.Based on the data of “A Survey of Thousands of Villages in China” in 2011-2018, the study finds that: The rate of small-scale farmers’ land rental is on the decline, the rate of independent management and abandonment is on the rise, while the rate of large-scale farmers’ land rental is on the rise. The empirical results show that: Capital subsidies reduce the price of capital relative to labor, promote the increase of farmers’ capital input, and then improve the willingness of large-scale farmers to rent in farmland; incentive subsidies are similar to efficiency wages, which increase the income of agricultural production relative to non-agricultural employment, reduce the willingness of small-scale farmers to rent out farmland, or raise the rent of farmland in the process of transfer, so that the cost of large-scale farmers renting farmland increases, and incentive subsidies’ promoting effect on large-scale farmers’ renting farmland decreases; inclusive subsidies are similar to the dividend generated by interest earning assets, which have a positive impact on the transfer of agricultural land.Farmers’ wage income is the opportunity cost for farmers to engage in agricultural production. The higher the wage income is, the more willing small farmers are to rent out farmland. Due to the existence of capital subsidies,when large farmers expand the scale, they mainly increase capital investment, but not raise labor employment, so higher wage income often promotes large farmers to rent in farmland. Because of regional endowment and economic development, there is heterogeneity in the effect of agricultural subsidies in non-main production areas. Therefore the positive effects of capital subsidies and inclusive subsidies on the transfer of agricultural land are not significant in non-main production areas.

Tax evasion, market adjustments, and income distribution

How does tax evasion affect the distribution of income? In the standard analysis of tax evasion, all the benefits are assumed to accrue to tax evaders. However, tax evasion has other impacts that determine its true effects. As factors of production move from tax-compliant to tax-evading (informal) sectors, these market adjustments generate changes in relative prices of products and factors, thereby affecting what consumers pay and what workers earn. As a result, at least some of the gains from evasion are shifted to consumers of goods produced by tax evaders, and at least some of the returns to tax evaders are competed away via lower wages.

Tasks, Technology, and Factor Prices in the Neoclassical Production Sector

This paper introduces tasks into the neoclassical production sector. Competitive firms choose the profit-maximizing amounts of factor-specific tasks that determine their factor demands and output supplies. We show that the effect of factor-augmenting technical change on relative and absolute factor prices can be decomposed into a productivity effect and a market size effect of opposite sign. These effects appear since the novel task-based approach distinguishes between the demands for tasks and the demands for factors. This perspective provides a new intuition for the emergence of relative and absolute factor biases and the role of the elasticity of substitution.

Globalization versus redistribution? Egalitarian policies in a competitive world economy

A reduction of impediments to international flows of goods, capital and professional labor is thought to raise the economic costs of programs by the nation state (and labor unions) to redistribute income to the poor and to provide economic security. But some of the more politically and economically successful examples of such policies—for example, Nordic social democracy and East Asian land reform—have occurred in small open economies which would, on the above account, provide a prohibitive environment for egalitarian interventions. I present a model of globalization and redistribution to answer the following question: in a liberalized world economy, what programs of egalitarian redistribution and social insurance are implementable by democratic nation states acting independently? While in the absence of international coordination, globalization indeed makes it difficult for nation states to affect the relative (after tax) prices of mobile goods and factors of production and for this and other reasons may limit the effectiveness of some conventional strategies of redistribution, a large class of state and trade union interventions leading to substantial improvements in the wages, employment prospects, and economic security of workers is not ruled out by globalization. Included are redistributions of assets which provide efficient solutions to incentive problems arising in principal agent relationships such as wage employment, farm and residential tenancy.

Market access, agro-ecological conditions, and Boserupian agricultural intensification patterns in Kenya: Implications for agricultural programs and research

Abstract While Boserupian intensification processes have been documented in many parts of Africa, there is regional variation in the trends in relative prices of land, labor, and capital inputs such as fertilizer. Some rural areas are experiencing unprecedented spikes in land values associated with growing land scarcity, improved market access, and agricultural commercialization potential, while others remain economically isolated and less influenced by the transformational changes occurring elsewhere in the region. This study uses a panel spanning 13 years of 1208 smallholders in Kenya to assess whether households’ response to changes in relative factor prices varies by agro-ecological potential and market access. In areas of low agro-ecological potential, households respond to rising land prices by cultivating less land and applying fertilizer more intensively but do not appear to adjust fertilizer use in response to changing fertilizer prices. By contrast, households in areas of high agro-ecological potential do not appear to adjust the quantity of land under cultivation in response to changing input prices but increase fertilizer use as land prices rise and fertilizer prices fall. Finally, households with better market access conditions appear slightly more responsive to land price changes than do those with poor market access. Given anticipated trends in factor price ratios, this heterogeneity suggests that sustainable forms of agricultural productivity growth will require anticipating the kinds of farm management technologies that will be suitable for farmers in different conditions. This highlights the need for agricultural technology generation and diffusion programs that assist smallholders to overcome the constraints that may prevent them from adapting sufficiently on their own.

What Determines the Direction of Technological Progress?

What determines the direction of technological progress is one of the central questions that economics needs to answer. By introducing a small but fundamental generalization of Acemolgu (2002) the current paper points out the key determinants of that direction. The extended model argues that although in the short run changing relative factor prices (as suggested by Hicks 1932) and the relative market size (as argued by Acemoglu 2002) indeed affect the direction of technological progress, in the long run that direction depends only on the relative supply elasticities of primary factors with respect to their respective prices. Moreover, it is biased towards enhancing the effectiveness of the factor with the relatively smaller elasticity. Moreover, applying the extended model we show that the infinite capital supply elasticity implicitly assumed by the standard neoclassical growth model is solely responsible for its implication that technological progress must be purely labor-augmenting for that model to possess a balanced growth path, a property that has troubled growth theorists ever since the publication of the Uzawa Theorem in 1961. In a similar vein, in the standard Malthusian world technological progress cannot include labor-augmentation in the long run because in that framework it is the labor supply that is assumed to be perfectly elastic. The paper also demonstrates that pure labor-augmentation is not a necessary condition for the stability of factor income shares.

Testing for Relative Factor Equalization with Its Major Trading Partners: The Case of Korea

Even though Factor Price Equalization (FPE) provides significant implications in international trade, it tends to not be supported fully by empirical evidence. The holding of the FPE with non-stationarity of time series data under newly arranged international environment was tested by utilizing the cointegration methodology by Johansen-Juselius and the error-correction model (ECM) for data from Korea, the U.S and Japan. Results revealed that the relative FPE by commodity prices does not hold in general in the long run. Furthermore, general equilibrium is not supported even in the short run in most cases. As for the relative factor prices, long-run relationships were shown in some cases, not all. Also, no evidence was found for holding the FPE even in the short run. It also has to be mentioned that an open economic system does not help support the FPE. The paper is basically designed to test if the FPE in Korea is held with its major trading partners at the macro aspect under newly arranged international environment. However, it is agreeable that the implication of empirical findings is limited because of the issue on aggregation. Accordingly, further concern on this issue is expected in the future.

Measuring energy economic efficiency: A mathematical programming approach

The widely used measurement for energy efficiency are in form of physical quantity, thus neglecting the economic cost and the imperfect substitution among energy and other production factors such as capital and labor. In the real world, least energy input does not always leads to optimal factor combinations in production processes. The goal of producers is to minimize the total factor cost or maximize the profit instead of minimizing the physical input. The optimum factor combination is constrained not only by the available technology but also by the relative prices of factors. Based on the production theory and mathematical programming, the “energy economic efficiency (ee)” is constructed to calculate energy efficiency which connects energy productivity and economic efficiency (Ee). In this paper, we have a further discussion on the properties of the energy economic efficiency diagrammatically and mathematically and measure the efficiency in electricity generation sector of 23 International Energy Agency (IEA) countries. Compared with traditional energy efficiency indicators (in physical form), we develop a more proper way of evaluating energy efficiency with better performance.

MICROBES AND MARKETS: WAS THE BLACK DEATH AN ECONOMIC REVOLUTION?

Abstract:Recent papers have suggested that the Industrial Revolution in Europe ultimately derives from the labor scarce economy of northwest Europe, which some trace back to the Black Death [Voigtländer and Voth (2013a) and Allen (2011)]. This paper examines the effects of the Black Death in England. Specifically, did it merely change relative factor prices, or did it lead to lasting gains in the efficiency of the economy after 1348? Extensive wage and price data from England 1210–1800 suggest that the population losses of the Black Death were associated with a surprising increase in economic efficiency, despite the decline in the scale of the economy. But this efficiency gain disappeared when population rose again in the 16th century. There is no sign of a connection between a labor scarce economy, and a switch to faster long run economic growth through technological advance.

The Cambridge capital controversies: contributions from the complex plane

ABSTRACTThis article takes a fresh look at reswitching. When two production techniques are compared, reswitching occurs when one technique is more viable than the other at a high interest rate, switches to being less viable at a lower rate, and reswitches to being more viable again at even lower rates. For some, reswitching undermines the foundations of neoclassical economics because it belies the idea of a monotonic relationship between relative capital values and factor price. The reswitching equation is an nth degree polynomial having n roots, implying the existence of n interest rates. Conventional analysis uses one interest rate but ignores the others. We argue that the others should not be ignored because all rates are determined simultaneously, and when one rate shifts, all rates shift. We demonstrate that the Samuelson reswitching model possesses a ‘dual’ expression containing every interest rate, the rates being compressed into a composite, interest-rate variable, thereby establishing a role for interest rates previously thought lacking in use and meaning. The relationship between this composite interest rate and capital value does not exhibit reswitching. The notion of a composite interest rate has implications for economics beyond reswitching.

Wages, prices, and technology in early Catalan industrialization

Catalonia was the only Mediterranean region among the early followers of the British industrial revolution. The roots of this process can be traced back to the seventeenth and eighteenth centuries when the Catalan economy became integrated into international trade, and a successful printed calico industry concentrated in the city of Barcelona. Although the factory system was largely adopted by the cotton industry in the 1840s, the diffusion of the spinning jenny in Catalonia had occurred earlier, in the 1790s. In line with Allen, this article explores whether relative factor prices played a role in the widespread adoption of the spinning jenny in Catalonia. First, series of real wages in Barcelona are supplied for the period 1500–1808. Second, the prices of labour and capital are compared and the potential profitability of the adoption of the spinning jenny is analysed. Findings show that although Catalonia was not a high wage economy in the way that Britain was in the second half of the eighteenth century, evidence from the cotton spinning sector confirms the relevance of relative factor prices in the adoption of new technology. Within the booming cotton sector after the 1780s, high wages created strong incentives for the adoption of the labour‐saving spinning jenny.

Relative Factor Abundance and Relative Factor Price Equality in Punjab

This study tests the relative factor price equality across districts in Punjab using the methodology developed by Bernard, Redding, and Schott (2009) and data from the Census of Manufacturing Industries for 2000/01 and 2005/06. The results indicate the absence of relative factor price equalization due to the uneven distribution of factors in the province. Nonproduction (white-collar) workers) are relatively scarce in Punjab, which results in a wage premium for this type of labor. The study adjusts for worker quality by using a Mincerian wage equation as worker quality could explain the wage differential between white-collar and blue-collar workers. However, this exercise yields similar results, implying that factors are distributed unevenly across the districts of Punjab even after controlling for worker quality differences.

IMPACTS OF IMPORT TARIFF REMOVAL AND CHANGES IN INTERNATIONAL PRICES ON THE APPLICABILITY OF THE TRADITIONAL HOS TRADE THEORY

This paper examines the effects of agricultural and nonagricultural trade policy changes in the Brazilian economy using a computable general equilibrium model (CGE). An extended Salter-Swan model is employed to verify if the Stolper-Samuelson theorem (SST) holds after having a trade barrier removed and the consequences in terms of prices, production and resources allocation. Results show that the Stolper-Samuelson hypothesis is reversed when imports and domestic goods are poor substitutes. Reduction in import tariff increases national income, which implies that inappropriate trade policy adjustments can stand in the way of promoting rapid and equitable economic growth. Further, our results show that changes in relative factor prices in Brazil depend not only on changes in commodity prices, as in the SST, but also on changes in the balance of trade and factor endowments. This study mainly proposed to verify a specific result from a theoretical trade model, which makes important to stress the carefulness about the empirical results obtained to the Brazilian trade policies.