Academic journal article International Advances in Economic Research

Endogenous Factor-Commodity Price Structure by Factor Endowments

Academic journal article International Advances in Economic Research

Endogenous Factor-Commodity Price Structure by Factor Endowments

Article excerpt

This study demonstrates that the absolute factor price and commodity prices in the Heckscher-Ohlin model after trade can be determined by exogenous factor endowments under the assumption of the identical demand tastes or the identical homothetic preference.

Under the assumption of identical demand taste, the terms of trade can be given by [alpha] = ([x.sub.2.sup.F] - [x.sub.2.sup.H]) / ([x.sub.1.sup.H] - [x.sub.1.sup.F]), where [x.sub.i.sup.h] is output i in country h. By the full-employment condition, it can be further written as [alpha] = [[a.sub.K1]([L.sup.H] - [L.sup.F]) - [a.sub.L1]([K.sup.H] - [K.sup.F])] / [[a.sub.k2]([L.sup.H] - [L.sup.F]) - [a.sub.L2]([K.sup.H] - [K.sup.F])], where L is labor and K is capital. Suppose that equalized commodity prices are [p*.sub.1] = [alpha] and [p*.sub.2] = 1, where superscript * indicates the price after trade, the endogenous labor wage rate is w* = ([a.sub.K2][alpha] - [a. …

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