Rybczynski Theorem Research Articles

Специфічні фактори виробництва: сутність та особливості використання в умовах відновлення економіки

Modern international trade is becoming more and more complicated, competition on world markets is intensifying, increasing export volumes requires new approaches to managing production factors. The distribution of production factors among economic sectors and the level of their mobili-ty within the country and abroad depend on the evaluation of the factors' characteristics. Factors of production are no longer homogeneous, even the same industry sometimes requires factors with dif-ferent characteristics. The concept of specific factors of production is best suited for studying the in-ternational mobility of resources and explaining the structure of exports. The purpose of the study is to study the possibility of applying the concept of specific factors of production to model the distribution of factors between branches of the national economy, based on the needs of developing their export potential. The main research methods were theoretical gen-eralization, economic-statistical analysis, graphic-analytical method. The information base of the work was the theories of Heckscher-Ohlin, the theory of specific factors of production, Rybczynski theorem, Stolper-Samuelson theorem, Jones magnification effect. To achieve the set goal, the follow-ing tasks were completed: the theoretical basis of specific factors of production was formalized; well-known theories and theorems of specific factors of production were researched for their appli-cation in conditions of recovery of the domestic economy; tools for applying the concept of specific factors of production in the formation of the post-war recovery strategy of Ukraine's economy are described. The work clearly demonstrates the advantages of dividing production factors into different categories from the point of view of their characteristics. The intensity of the use of specific factors of production directly affects the volume of production of export products and the prices of factors. The described theoretical basis of specific factors of production can be used in the process of model-ing the post-war recovery of the economy of Ukraine, provided that effective tools for evaluating and forecasting the structure and dynamics of factors of production and their parameters are formed. The practical significance of the study is that, based on it, it is possible to form the elements of the strategy for managing factors of production in the post-war period: 1. Inventory and audit of existing factors of production with their classification into separate groups according to established criteria. 2. Determination of industries, their elements, individual goods or enterprises that have the greatest potential for increasing export potential. 3. State regulation of absolute and relative prices for factors of production should be aimed at maintaining potentially export-oriented institutional units. 4. The established criteria for assigning labor, capital and land resources to certain "specific" groups of production factors should become a motive for increasing their international and internal mobility, subject to compliance with national security conditions. Forecasting the efficiency indicators of the use of specific factors of production and the con-sequences of their use for international trade will give a clear signal to business and international partners about the vector of development of the domestic economy. After the creation of a distribu-tion system and technology for managing specific factors of production, it will be possible to concen-trate efforts on the development of promising industries and reasonably abandon inefficient ones. In the future, economic-mathematical models should be created and tested for the optimal distribution of factors within individual industries, inter-industry movement of factors, and maximi-zation of export potential in terms of both individual products and vertically integrated combina-tions. The results of such modeling can become the basis for the formation of a national strategy for attracting, distributing and using factors of production with the participation of foreign partners.

China's OFDI and the economic growth: From the perspective of natural resource

AbstractUsing a country‐level panel data set of China's outward foreign direct investment (OFDI) during 2003–2015, we find that China increases its direct investment in an economy endowed with natural resources, which increases the exports of the resources to China. Facilitated by the industry‐level data between 2003 and 2008, we further show that the increase of China's OFDI in the economies abundant in natural resources would boost the output of Chinese industries which use the resources intensively but shrink the industries that are less intensive in the resources. These findings are consistent with the Rybczynski theorem and suggest that China's OFDI increases its domestic supply of natural resources.

The impact of Spanish immigrants on the Trinidad and Tobago’s economy: can Spanish as a second language promote trade?

ABSTRACT This paper examines the extent to which having Spanish as a second language influences trade in Trinidad and Tobago (T&T). Our study is motivated by the inflow of Venezuelan migrants into T&T on account of political and economic tensions in Venezuela. This influx of immigrants can positively impact the T&T economy using the Rybczynski theorem. This is necessary given that the country faces an aging population and a decline in trade with traditional trade partners. Gravity modelling including Pooled OLS, Fixed Effects Model, Random Effects Model and the Poisson-Pseudo Maximum Likelihood method are used to examine whether language affects T&T’s extra-regional trade with Spanish speaking countries. It is determined that language is a significant factor in promoting trade in T&T, increasing bilateral trade and exports. The impact of Spanish immigrants on the T&T economy reduces the loss of exports as compared to if Spanish immigrants were absent. We suggest an intensification of the adoption of Spanish as a second language in T&T in order to promote trade with other Spanish speaking countries as it would reduce communication costs.

A note on Dani Rodrik, “Populism and the economics of globalization”

As far as trade as a cause of anti-globalism is concerned, Dani Rodrik’s analysis is built on the Stolper–Samuelson theorem, which shows only a wage decline through static equilibrium analysis. Although this distributional effect on labor welfare is one focal point of populist anti-globalism, other globalization-related issues – notably, obstinate joblessness and “rusted-out” towns – for which trade liberalization is partially accountable, are serious causes (as reflected in the Trump revolution). To explain these vexing issues, this commentary introduces three additional angles: the Rybczynski theorem, Schumpeterian structuralist perspective, and multinationals-driven globalization. These perspectives can help us to understand the dynamic, structural forces generated under the liberal world order, the forces that often impinge on national interests. Some new research agenda, especially a focus on MNEs’ supra-firm and supra-national ecosystems and their capacity to adapt to the currently disrupted global ecosystem, is suggested for international business scholars.

Equilibrium Price and Generalized Stolper-Samuelson Theorem and Generalized Rybczynski Theorem

Both the Heckscher-Ohlin theorem and the factor price equalization theorem depend on or related to trade equilibriums. The trade equilibrium is the price equilibrium of production, consumption and trade. This study provides a price solution for the Heckscher-Ohlin model by using HOV assumption that consumption share is the GNP share. It also identifies the price solution set for all possible values of the consumption share and proves that there is a unique equilibrium price for a given consumption share. New trade effects, the generalized Rybczynski theorem and the generalized Stolper-Samuelson theorem, based on the terms of trade, are developed. And the study demonstrates that the equilibrium price is the best price for the abundant factor and the worst price for non-abundant factor for each country from the view of factor endowments. The study receives that with economic growth and the changes of factor endowments, the new price equilibrium will create new gains from trade. Overall, this paper studies economic interactions after trade; it is a rarely touched area of the H-O studies.

Technology Effects on Trade Virtual Factor Advantages by Technological Differences

This paper studies a 2x2x2 Ricardo-Heckscher-Ohlin Model (briefly R-H-O model) by introducing different technologies into the Heckscher-Ohlin model. The key tool of this study is presenting a solution of common commodity prices embedded with two sets of local factor prices for each countries, which is an endogenous prices fully determined by technological coefficients and by factor endowments. A virtual R-H-O system is built by extending Fisher (2010)’s concept of the virtual factor endowments. The virtual R-H-O system is a typical H-O model mathematically, so the major H-O theorems can be generalized into the virtual R-H-O model directly without much difficulty. The Heckscher-Ohlin theorem is generalized as the virtual Heckscher-Ohlin theorem in the R-H-O model, which says that a country will export the commodity that uses its virtual abundant factor intensively. The virtual factor price equalization theorem says that the factor price of a country will be equalized with the virtual factor price of its counterpart country. This means that two local (real) factor prices are non-equalization. The Rybczynski theorem is generalized to a comprehensive trade effects on the changes of local output, commodity price, and two local factor prices. One interesting result is that both countries, participated trade with different technologies, can even export same (kind of) factor content of trade and import the same (kind of) factor content of trade. It implies that the capital-labor ratio embodied in consumptions for both countries may excesses capital-labor ratio embodied in products, for some cases. It is odd to common understanding of factor content of trade by Leamer theorem (1980). This explores a new trade function – virtual factor advantage. Trade compensates the scarce resource worldwide by virtual factor endowments. The countries can produce or consume more when they trade with virtual factor advantage. The virtual advantage is sourced from technological differences and is realized by trade. It proves a new angle to think the “missing trade” and Leontief’s paradox, since the factor contents of trade are balanced by virtual factor contents, not by real factor content of trade.

New Evidence on Technology, Trade and Adjustment to Immigration in Israel

In the 1990s, nearly a million Russian Jews emigrated to Israel following the fall of the Iron Curtain. This event was exogenous in nature and resulted in a large increase in the relative supply of skilled labour in Israel. Despite this change in factor abundance occurring in conditions seemingly well suited to an application of the Rybczynski theorem, the evidence so far indicates that changes in sectoral output mix played no role in Israel's adjustment to Russian immigration. Instead, the inflow of factors complementary to skilled labour, such as skill-biased technology, has been put forward by the literature as an explanation for the adjustment process in Israel. By accounting for the extent of occupational downgrading of Russian immigrants and an appropriate amount of time for sectoral changes to occur I present new evidence that changes in the composition in output across sectors was indeed an important adjustment mechanism in Israel. Changes in output mix were of a similar importance to changes in production techniques within sectors in accounting for the increase in skilled labour. Changes in production techniques appear to be consistent with skills biased technical change; sectors with a greater high technology equipment and services input intensity were associated with increased skill upgrading in the workforce in subsequent years.

Understanding Foreign Direct Investment in East Asia

The authors recount East Asia’s experience with foreign direct investment (FDI). They document that, contrary to the Rybczynski theorem, capital flows in the region cause the host country’s labor-intensive industry to expand and its capital-intensive industry to decline. They also present narrative evidence that sheds light on how FDI is affected by the host country’s locational advantages, whether Asian FDI is footloose, and how the PRC has become the center of Factory Asia. Finally, they show that the evolution of production networks in the region can be explained partly by changes in the service cost of linking geographically separated production blocks relative to the cost saving arising from slicing up the value chain.

ECONOMIC GROWTH WITH TRADE IN FACTORS OF PRODUCTION

We study the world trading equilibrium in a Ricardian model, where factors of production are produced and traded. Even in the absence of technology transfer, international investment, research and development, and aggregate scale effects, trade affects economic growth through comparative advantage. Trade may raise the growth rate or leave it unchanged, depending on the patterns of comparative and absolute advantage. Trade in factors of production can effectively equalize technology even when technology transfer does not occur. Factor price equalization may hold, but the Stolper–Samuelson and Rybczynski theorems do not. The transition dynamics can be monotonic or oscillatory.

Testing Rybczynski Theorem: An Evidence from The Selected European Transition Countries

The goal of the paper is to test Rybczynski theorem in the case of selected European transition countries. Simple Heckscher-Ohlin model is extended in the analysis of many countries, two production factors and two products in the model. Assumptions of the theorem are conducted to scrutiny. The results of the analysis reject the hypothesis of the paper which states that “an increase in the endowment of one production factor, all other variables unchanged, will increase, by a greater proportion, the production of good that intensively uses that factor of production”. There is an existence of cointegration between input-output changes only in case of Poland. There are few key reasons why Rybczynski theorem does not hold in European transition countries: human capital and land as other factors of production, unemployment, increasing marginal costs of production, trade barriers, differences in technology among countries, product diversification and other factors related to globalization and liberalisation of world trade. DOI: 10.5901/mjss.2013.v4n10p99

Relative Prices, Trade, Technology and Wage Inequality: Evidence from India

This article examines the link between relative export, import and domestic goods’ prices and relative wages over the years by empirically testing the Stolper–Samuelson theorem for India. It also examines the role of other factors such as manufacturing trade, liberalization phase, inflation, foreign and domestic technology, etc. on rising wage inequality in the manufacturing sector in India. The results seem to prove the validity of Stolper–Samuelson theorem. The results also throw some light on Rybczynski theorem, which shows the relationship between output and endowment and factor price insensitivity elasticity, and the link between factor endowments and factor prices. The empirical testing is done using estimates of the translog production function and translog cost function along with the share equations. The elasticity of substitution between factors of production has been worked out using Allen’s and Morishima’s formulae, which in turn use estimates of the translog cost function.

Information Technology and Establishment Size in America: Rybczynski Redivivus☆

The Rybczynski Theorem is one of the staples of international trade theory. In their article in this issue of the journal, J.J. Rosa and J. Hanoteau apply the theorem to a two-by-two world in which the two “industries” are small firms and large firms, and the two inputs are information and all other. The assumption that small firms are more information intensive, coupled with the fact that information has become pervasive in recent decades, allows them to derive the prediction that small firms will account for increasingly larger proportions of total output and employment in the economy. We highlight a couple of issues that we find problematic in the Rosa–Hanoteau study, and then develop two different empirical strategies to probe the connections between IT and the size distribution of establishments. First, we combine County Business Patterns with input–output data to explore whether the share of small plants has grown at a faster pace among industries that demand IT more heavily. Second, we explore, on an industry-by-industry basis and taking into account the potential endogeneity of IT location, whether clustering of IT firms in specific US counties is associated with a relatively large share of small establishments, on average, in those counties.

The effect of labor supply changes on output: empirical evidence from US industries

In this paper we examine the relationship between labor supply and industry-level output in the context of the specific factors model. Jones (Trade, balance of payment and growth: essays in honor of Charles P. Kindleberger, Amsterdam, pp 3–21, 1971) shows that a rise in the amount of labor in the economy will increase the output in all industries. We empirically show which industry output is predicted to expand more when the size of labor force grows. Unlike the commonly used Rybczynski Theorem (Economica 22:336–341, 1955) of the Heckscher-Ohlin model, the specific factors model shows that a comparison both of labor intensities and labor demand elasticities plays an important role in determining which output expands relatively more when the size of labor force grows. For this purpose, we illustrate the importance of the parameters of the model in determining how changes in the labor supply affect the output change, with special reference to elasticities of substitution in production. We estimate the elasticity of substitution by using CES production function and show how these estimates describe the general equilibrium of production with one mobile factor (labor) and 25 industries of the US economy using data for 1979–2001. We show that the increase in the supply of labor raise output in all industries, but the magnitudes of the increases in some industries are more than others depending on the value of the elasticity of substitution along with factor intensities between industries. The largest output effect occurs for educational, health care and social service, where a 1 % supply of labor increase would raise output 10.5 %. However, the growth in the labor supply has a small impact on output growth in the range of 0.1–0.6 % in agriculture, petroleum, coal product and finance and insurance industries.

The von Neumann–McKenzie facet and the Jones Duality theorem in two‐sector optimal growth

It has been known that in the neoclassical two‐sector growth model, a von Neumann–McKenzie facet coincides with a Rybczynski line and that the Rybczynski line through the steady state lies on the graph of an ergodically chaotic optimal dynamical system. This study reveals a close relationship between optimal dynamics and the Jones duality theorem, which uncovers the duality between the Rybczynski theorem and the Stolper–Samuelson theorem. More precisely, the characteristic roots of the Euler equation, characterizing optimal dynamics around the steady state, are equal to the Rybczynski term and the inverse of the Stolper–Samuelson term in the Jones theorem.

International Trade with a Renewable Resource as an Intermediate Good: The Steady State Analysis in a Small Open Economy

Two final goods, one primary factor and one resource model was developed to examine the effects of free trade on a small open economy when open-access resources are used as an intermediate to produce the final goods. We suppose only the final goods to be tradable and restrict our attention to the steady state of this economy. Then we investigated the production patterns and economic welfare. The mechanism behind this model follows the Rybczynski theorem in the standard Heckscher-Ohlin model, but responses to the resource harvest and outputs to a change in the relative price are ambiguous. The production patterns and welfare gains depend on the equilibrium resource stock before trade. Under some circumstances, a small open country may suffer from trade, while free trade may also mitigate the overuse of the resource stock.JEL Classification: F11, F18, Q22, Q27, Q28

Trade theorems with search unemployment

Abstract We revisit the Heckscher‐Ohlin‐Samuelson model in the presence of labour market frictions à la Mortensen‐Pissarides. Relaxing the assumption of the one‐worker‐one‐firm matching rule, we show that the Stolper‐Samuelson theorem and the Rybczynski theorem may not hold in specific circumstances. We also demonstrate that the Factor Price Equalization theorem is valid only for capital and unemployed labour across countries, but not for employed labour. In equilibrium, trade patterns are determined by countries’ factor endowments and relative factor intensities in sectors (independent of factor intensities in production). Finally, our results suggest an additional explanation for the ‘missing trade’ phenomenon.

Rybczynski's Theorem in the Heckscher–Ohlin World — Anything Goes

We demonstrate that Rybczynski's classic comparative statics can be reversed in a Heckscher–Ohlin world when preferences in each country favor the exported commodity. This taste bias has empirical support. An increase in the endowment of a factor of production can lead to an absolute curtailment in the production of the commodity using that factor intensively, and an absolute expansion of the commodity using relatively little of the same factor. This outcome – which we call “Reverse Rybczynski” – implies immiserizing factor growth. We present a simple analytical example that delivers this result with unique pre- and post-growth equilibria. In this example, production occurs within the cone of diversification, such that factor price equalization holds. We also provide general conditions that determine the sign of Rybczynski's comparative statics.

The Economic Impact of Medical Migration: A Receiving Country's Perspective

AbstractThis paper seeks to determine the macroeconomic impacts of migration of skilled medical personnel from a receiving country's perspective. The resource allocation issues are explored in theory, by developing an extension of the Rybczynski theorem in a low‐dimension Heckscher–Ohlin framework, and empirically, by developing a static CGE model for the UK with an extended health sector component. Using simple diagrams, an expansion of the health sector by recruiting immigrant skilled workers in certain cases is shown to compare favorably to the long‐term (short‐term) alternative of using domestic (unskilled) workers. From a formal analysis, changes in nonhealth outputs are shown to depend on factor‐bias and scale effects. The net effects generally are indeterminate. The main finding from the applied model is that importing foreign doctors and nurses into the UK yields higher overall welfare gains than a generic increase in the NHS budget. Welfare gains rise in case of wage protection.

A comparative analysis of some policy options to reduce rationing in the UK's NHS: Lessons from a general equilibrium model incorporating positive health effects

This paper seeks to determine the macro-economic impacts of changes in health care provision. The resource allocation issues have been explored in theory, by applying the Rybczynski theorem, and empirically, using a computable general equilibrium (CGE) model for the UK with a detailed health component. From the theory, changes in non-health outputs are shown to depend on factor-bias and scale effects, the net effects generally being indeterminate. From the applied model, a rise in the National Health Service (NHS) budget is shown to yield overall welfare gains, which fall by two-thirds assuming health care-specific factors. A nominally equivalent migration policy yields even higher welfare gains.

Factor Endowment, the Choice of Technology, and the Volume of Trade

This paper studies impacts of factor endowment on international trade in a general equilibrium model in which firms choose their technologies endogenously. Although countries only differ in factor endowment ex ante, countries may also differ in their chosen technologies. If industries choose different capital-labor intensities in equilibrium, the Heckscher–Ohlin theorem, factor price equalization theorem, the Rybczynski theorem, and the Stolper–Samuelson theorem hold. If industries choose the same capital-labor intensity in equilibrium, the volume of trade is zero. None of the four theorems applies.