Journal or Book Title
International Review of Economics and Finance
First Page or Article ID Number
This paper considers two simple questions relating to the Heckscher–Ohlin model: (i) How does factor growth affect the terms of trade between the North and the South? (ii) If factor prices are equalized by trade, at what levels are they equalized? Regardless of where it occurs, labor growth improves the terms of trade of the capital-abundant region, whereas capital growth has the opposite effect. Equalized factor prices are “less” than a convex combination of autarky factor prices. A numerical example using Cobb-Douglas production and utility functions illustrates the propositions.
Choi, E. Kwan, "Factor Growth and Equalized Factor Prices" (2008). Economics Publications. 105.