The sufficiency of the `lens condition' for factor price equalization in the case of two factors

Article Abstract:

Factor price equalization (FPE) is a central theme in trade theory, for which [Dixit, A.K., Norman, V., 1980. Theory of International Trade, Cambridge University Press, London] establish the necessary and sufficient condition (the Dixit-Norman condition). [Deardorff, A.V. 1994. The possibility of factor price equalization: revisited, Journal of International Economics 36, 167-175.] provides a more intuitive condition (the lens condition) and establishes its necessity in general, as well as its sufficiency for the case of two countries. In this paper, I prove that the lens condition is sufficient for FPE in the case of two factors. This theorem has implications for empirical work. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Factor price equalization; Integrated world economy; Intermediate lens; Lens condition JEL classification: F11

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In search of substitution between foreign production and exports

Article Abstract:

Are foreign production and exports substitutes or complements? Standard theory of the multinational corporation (MNC) assumes substitution, while previous empirical work examining the relationship has generally found strong evidence of complementarity. This study examines product-level data, which more closely fits the assumption of a single-product firm often used in MNC theory, and finds substantial evidence for both a substitution and a complementarity effect between affiliate production and exports with Japanese automobile parts for the US market. I also test for and find evidence of substitution using product-level data on a set of Japanese-produced final consumer goods. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Trade; Multinational corporations; Foreign direct investment JEL classification: F21; F23

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Quasi-specific factors: worker comparative advantage in the two-sector production model

Article Abstract:

This paper integrates the Heckscher-Ohlin, specific factors, and the Ricardian models of production with applications to international trade and labor economics. The model economy exhibits both Heckscher-Ohlin and specific factors properties, but never at the same time. In international trade, the wage skill premium across countries can move in different directions and has natural limits within countries. In labor economics, we show that the earning of economic rents is not inconsistent with competitive markets in general equilibrium and that process and skill-based innovations have contrasting effects on wage inequality. [C] 2001 Elsevier Science B.V. All rights reserved. Keywords: Heckscher-Ohlin; Ricardian; Specific factors; Wages JEL classification: F11; D33

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