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Frank Westermann - One of the best experts on this subject based on the ideXlab platform.
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Factor Price equalization the cointegration approach revisited
Review of World Economics, 2001Co-Authors: Helge Berger, Frank WestermannAbstract:Absolute Factor Price equalization across countries is a key prediction of the Heckscher-Ohlin-Samuleson model of international trade, one of the more influential “workhorse” models in economics. Despite its theoretical might, the Factor Price equalization hypothesis has received surprisingly little empirical support. In an important exception to the rule, Burgman and Geppert (1993) argue that this might be due to the neglect of the non-stationarity of the time series under consideration. And indeed, applying a cointegration approach to (nominal) unit labor costs in six major industrialized countries (Canada, France, Germany, Japan, the United Kingdom, and the United States), they find evidence of long-run Factor Price co-movement. This finding can be interpreted as being in line with equalization of Factor Prices amongst these countries.
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Factor Price equalization the cointegration approach revisited
Social Science Research Network, 2001Co-Authors: Helge Berger, Frank WestermannAbstract:Factor Price equality across countries is an important implication of the Heckscher-Ohlin-Samuelson model of international trade. Although an influential theoretical result, the model has received surprisingly little empirical support. Burgman and Geppert (1993) argue that this might be due to the neglect of the non-stationarity property of the time series under consideration. Using a cointegration approach, they find strong evidence pointing towards a long-run relationship between Factor Prices in six major industrialized countries. The present paper shows, however, that there is only limited evidence of cointegration once the finite sample bias is taken into account. Moreover, there is only weak evidence of a significant cointegrating relationship when real (rather than nominal) labor cost data are used. There is some indication of long-run co-movements of real Factor Prices when using the statistically more powerful bivariate tests rather than a multivariate framework.
Helge Berger - One of the best experts on this subject based on the ideXlab platform.
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Factor Price equalization the cointegration approach revisited
Review of World Economics, 2001Co-Authors: Helge Berger, Frank WestermannAbstract:Absolute Factor Price equalization across countries is a key prediction of the Heckscher-Ohlin-Samuleson model of international trade, one of the more influential “workhorse” models in economics. Despite its theoretical might, the Factor Price equalization hypothesis has received surprisingly little empirical support. In an important exception to the rule, Burgman and Geppert (1993) argue that this might be due to the neglect of the non-stationarity of the time series under consideration. And indeed, applying a cointegration approach to (nominal) unit labor costs in six major industrialized countries (Canada, France, Germany, Japan, the United Kingdom, and the United States), they find evidence of long-run Factor Price co-movement. This finding can be interpreted as being in line with equalization of Factor Prices amongst these countries.
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Factor Price equalization the cointegration approach revisited
Social Science Research Network, 2001Co-Authors: Helge Berger, Frank WestermannAbstract:Factor Price equality across countries is an important implication of the Heckscher-Ohlin-Samuelson model of international trade. Although an influential theoretical result, the model has received surprisingly little empirical support. Burgman and Geppert (1993) argue that this might be due to the neglect of the non-stationarity property of the time series under consideration. Using a cointegration approach, they find strong evidence pointing towards a long-run relationship between Factor Prices in six major industrialized countries. The present paper shows, however, that there is only limited evidence of cointegration once the finite sample bias is taken into account. Moreover, there is only weak evidence of a significant cointegrating relationship when real (rather than nominal) labor cost data are used. There is some indication of long-run co-movements of real Factor Prices when using the statistically more powerful bivariate tests rather than a multivariate framework.
Clinton R. Shiells - One of the best experts on this subject based on the ideXlab platform.
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Dynamic Factor Price Equalization and International Convergence
2009Co-Authors: Joseph Francois, Clinton R. ShiellsAbstract:We offer a duality-based methodology for incorporating multi-sector effects of international trade into open economy macroeconomic models, developing the concepts of the dynamic Factor Price equalization set and the integrated intertemporal equilibrium. Under this approach, the aggregate production function depends on output Prices and Factor endowment stocks. It preserves all of the structure of a standard GDP function from the trade theory literature. In a two-country version of the model considered below, we examine the properties of the dynamic Factor Price equalization set. If the global economy is initially outside of this set, the equations of motion will pull the economy back into this set. Inside the dynamic FPE set, Factor Prices are equalized internationally, and with identical tastes and technology, the economy can be regarded as a fully integrated world equilibrium in a dynamic sense (the integrated intertemporal equilibrium). In this equilibrium, all of the standard properties of a closed economy one-sector neoclassical growth model hold, ruling out cycles and chaos, and allowing us to characterize the evolution of international inequality and the persistence of productivity and endowment shocks. Working from the integrated intertemporal equilibrium, we identify properties of persistence linked to inequality and real economic shocks. Cross-country differences in per capita incomes and wealth, and the Factor content of trading patterns, may persist over time and even into the new steady state. This provides yet another reason why we might observe lack of income convergence internationally. In addition, real shocks in one country may be transmitted to the other country through Factor markets and product Prices, and may have persistent effects into the steady-state as well. The model can also generate an endogenous Balassa-Samuelson effect.
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dynamic Factor Price equalization international convergence
Social Science Research Network, 2008Co-Authors: Joseph Francois, Clinton R. ShiellsAbstract:We offer a duality-based methodology for incorporating multi-sector effects of international trade into open economy macroeconomic models, developing the concepts of the dynamic Factor Price equalization set and the integrated intertemporal equilibrium. Under this approach, the aggregate production function depends on output Prices and Factor endowment stocks. It preserves all of the structure of a standard GDP function from the trade theory literature. In a two-country version of the model considered below, we examine the properties of the dynamic Factor Price equalization set. If the global economy is initially outside of this set, the equations of motion will pull the economy back into this set. Inside the dynamic FPE set, Factor Prices are equalized internationally, and with identical tastes and technology, the economy can be regarded as a fully integrated world equilibrium in a dynamic sense (the integrated intertemporal equilibrium). In this equilibrium, all of the standard properties of a closed economy one-sector neoclassical growth model hold, ruling out cycles and chaos, and allowing us to characterize the evolution of international inequality and the persistence of productivity and endowment shocks. Working from the integrated intertemporal equilibrium, we identify properties of persistence linked to inequality and real economic shocks. Cross-country differences in per capita incomes and wealth, and the Factor content of trading patterns, may persist over time and even into the new steady state. This provides yet another reason why we might observe lack of income convergence internationally. In addition, real shocks in one country may be transmitted to the other country through Factor markets and product Prices, and may have persistent effects into the steady-state as well. Outside the steady-state, the relative Price of labor intensive goods/services also trends with the evolution of the capital stock.
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dynamic Factor Price equalization international income convergence
Dynamic Factor Price Equalization & International Income Convergence, 2008Co-Authors: Clinton R. Shiells, Joseph FrancoisAbstract:The paper develops a tractable way to incorporate the micro structure of dual models of international trade into a standard class of dynamic open-economy macro models. In the process, it develops the concept of a dynamic Factor Price equalization set and an integrated intertemporal equilibrium. A number of results are obtained concerning trade, growth, and income convergence. Countries with higher capital/labor ratios may stay wealthier over time, both in the transition and in the new steady state. Real shocks in one country will be transmitted to the other country through the Factor markets and traded goods Prices.
Kwan Koo Yun - One of the best experts on this subject based on the ideXlab platform.
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outsourcing and Factor Price equalization
2011Co-Authors: Kwan Koo YunAbstract:We show that outsourcing makes Factor Price equalization more likely by expanding the Factor Price equalization zone. Outsourcing also makes it more likely that the Factor Price equalization zone is full dimensional in the space of endowment allocations. Since the Factor Price equalization zone is usually high dimensional, it is diffi cult to represent it geometrically. When there are two Factors, we can represent the Factor Price equalization condition by the lens condition: the Factor use lens contains the country endowment lens. When outsourcing is available, we define the task lens and with it, a (generalized) lens condition: the task lens contains the country endowment lens. The lens condition with outsourcing is equivalent to the Factor Price equalization condition when there are two countries or two Factors. Since the task lens contains the Factor use lens, the lens condition is more likely to hold with outsourcing. The same analysis applies when there are other mobile Factors.
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similarity of endowments and the Factor Price equalization condition
Economic Theory, 2003Co-Authors: Kwan Koo YunAbstract:We give a geometric interpretation of the lens condition, proposed by Deardorff as a shortcut for checking the Factor Price equalization (FPE) condition. We identify the conditions under which the lens condition implies the FPE condition. If the FPE zone is not a neighborhood of the diagonal allocations, however, the lens condition is irrelevant despite the implication since the FPE condition (hence the lens condition) is unlikely to be satisfied in that case. We give precise conditions under which the lens condition is equivalent to the FPE condition and simultaneously, the FPE zone is a neighborhood of the diagonal allocations.
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the lens condition for Factor Price equalization
Journal of International Economics, 1999Co-Authors: Ufuk Demiroglu, Kwan Koo YunAbstract:Abstract Deardorff (1994) provides a condition that is necessary for Factor Price equalization across countries. This is a generalization of the condition that “country endowments should lie in the diversification cone” from the standard 2×2×2 Heckscher–Ohlin model to the case of many goods, countries and Factors. He also shows that this condition is sufficient in the case of two countries and conjectures that the sufficiency might hold in general. In this paper we establish the sufficiency in further cases. However, we show by a counterexample that the sufficiency does not hold in general.
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the lens conditions for Factor Price equalization
Research Papers in Economics, 1997Co-Authors: Ufuk Demiroglu, Kwan Koo YunAbstract:Deardorff (1994) provides a condition that is necessary for Factor Price equalization across countries. That condition is a generalization of "country endowments contained in the diversification cone" from the standard 2x2x2 Hecksher-Ohlin model to the case of many goods, countries and Factors. He also shows that this condition is sufficient in the case of two countries, and conjectures that sufficiency might hold in general. In this paper we establish sufficiency in some further cases. However, we show by a counterexample that the sufficiency does not hold in general.
Joseph Francois - One of the best experts on this subject based on the ideXlab platform.
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Dynamic Factor Price Equalization and International Convergence
2009Co-Authors: Joseph Francois, Clinton R. ShiellsAbstract:We offer a duality-based methodology for incorporating multi-sector effects of international trade into open economy macroeconomic models, developing the concepts of the dynamic Factor Price equalization set and the integrated intertemporal equilibrium. Under this approach, the aggregate production function depends on output Prices and Factor endowment stocks. It preserves all of the structure of a standard GDP function from the trade theory literature. In a two-country version of the model considered below, we examine the properties of the dynamic Factor Price equalization set. If the global economy is initially outside of this set, the equations of motion will pull the economy back into this set. Inside the dynamic FPE set, Factor Prices are equalized internationally, and with identical tastes and technology, the economy can be regarded as a fully integrated world equilibrium in a dynamic sense (the integrated intertemporal equilibrium). In this equilibrium, all of the standard properties of a closed economy one-sector neoclassical growth model hold, ruling out cycles and chaos, and allowing us to characterize the evolution of international inequality and the persistence of productivity and endowment shocks. Working from the integrated intertemporal equilibrium, we identify properties of persistence linked to inequality and real economic shocks. Cross-country differences in per capita incomes and wealth, and the Factor content of trading patterns, may persist over time and even into the new steady state. This provides yet another reason why we might observe lack of income convergence internationally. In addition, real shocks in one country may be transmitted to the other country through Factor markets and product Prices, and may have persistent effects into the steady-state as well. The model can also generate an endogenous Balassa-Samuelson effect.
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dynamic Factor Price equalization international convergence
Social Science Research Network, 2008Co-Authors: Joseph Francois, Clinton R. ShiellsAbstract:We offer a duality-based methodology for incorporating multi-sector effects of international trade into open economy macroeconomic models, developing the concepts of the dynamic Factor Price equalization set and the integrated intertemporal equilibrium. Under this approach, the aggregate production function depends on output Prices and Factor endowment stocks. It preserves all of the structure of a standard GDP function from the trade theory literature. In a two-country version of the model considered below, we examine the properties of the dynamic Factor Price equalization set. If the global economy is initially outside of this set, the equations of motion will pull the economy back into this set. Inside the dynamic FPE set, Factor Prices are equalized internationally, and with identical tastes and technology, the economy can be regarded as a fully integrated world equilibrium in a dynamic sense (the integrated intertemporal equilibrium). In this equilibrium, all of the standard properties of a closed economy one-sector neoclassical growth model hold, ruling out cycles and chaos, and allowing us to characterize the evolution of international inequality and the persistence of productivity and endowment shocks. Working from the integrated intertemporal equilibrium, we identify properties of persistence linked to inequality and real economic shocks. Cross-country differences in per capita incomes and wealth, and the Factor content of trading patterns, may persist over time and even into the new steady state. This provides yet another reason why we might observe lack of income convergence internationally. In addition, real shocks in one country may be transmitted to the other country through Factor markets and product Prices, and may have persistent effects into the steady-state as well. Outside the steady-state, the relative Price of labor intensive goods/services also trends with the evolution of the capital stock.
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dynamic Factor Price equalization international income convergence
Dynamic Factor Price Equalization & International Income Convergence, 2008Co-Authors: Clinton R. Shiells, Joseph FrancoisAbstract:The paper develops a tractable way to incorporate the micro structure of dual models of international trade into a standard class of dynamic open-economy macro models. In the process, it develops the concept of a dynamic Factor Price equalization set and an integrated intertemporal equilibrium. A number of results are obtained concerning trade, growth, and income convergence. Countries with higher capital/labor ratios may stay wealthier over time, both in the transition and in the new steady state. Real shocks in one country will be transmitted to the other country through the Factor markets and traded goods Prices.
