They can do this by adopting the "new structural economics" framework Lin proposes, which is organized around three ideas: that the economy's structure of factor endowments (land, labor, and capital) determines total budget, relative
factor prices, and comparative advantages; that each level of economic development is a point along the continuum from a low-income agrarian economy to a high-income industrialized economy; and that at each given level of development, the market is the basic mechanism for effective resource allocation, although the government should coordinate or provide improvements in infrastructure and compensate for externalities to facilitate industrial upgrading and diversification.
Accordingly the optimal level of trade will be when these
factor prices become equal or when [(w/ r).
However, results show statistically significant differences in coefficients between union and nonunion firms for ALH, ALOAD, ASIZE, and
factor prices.
More generally, if substitution possibilities among factors in production are limited then adjustment by industry to higher
factor prices will be somewhat difficult, and significant changes in the underlying technological structure may be required.
Some economists have also used measures of the factor content of trade to identify differences among the causes of observed changes in
factor prices.
For example, rapid technological catch-up in a poor country is more likely to increase all
factor prices equally than is mass emigration or an export boom in labor-intensive manufactures.
The reason: both sectors adopt techniques appropriate to
factor prices, and as the wage/rental ratio is driven up by expansion of the labor-intensive commodity, both sectors respond by switching to more capital-intensive techniques.
Then I will draw the implications regarding the impact of monopolistic grants on
factor prices.
The iterative process that leads from the oil shock to overall higher prices in the long run is not inflationary; it represents a rise in the relative price of commodities, holding
factor prices constant.
Thus they affect relative
factor prices, total production, and output prices.
Changing prices of goods generally have elastic effects on
factor prices.
Factor price equalization refers to an equality of
factor prices of homogeneous factors of production.
