International Trade

Neoclassical Models and Rybczynski Theorem

Rybczynski Theorem

Total differentiation of (3) gives

Therefore,

(3)’

By the same method, from (4),

(4)’

 

Manipulating equation (3)’ gives

where ^ denotes change rates
.

 

Defining

 

we have two equations

(5)

(6)

 

For a small country, when endowments change, factor intensity will not change (as it is decided by the world prices).

 

 

 

With

(5) and (6) are

(5)’

(6)’

 

From (5)’ and (6)’,

If L increases (while K is fixed),

(remind

 

Result:

 

What do we get?

1. Factor endowment and production

2. Magnification effects



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[Topic] Basic Models


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[mtcha@ecel.uwa.edu.au]
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