The threefactor specific factors model of an economys production po. The model also suggests that while trade may increase wage inequality, this does not imply that poverty increases as wages of unskilled workers increase. The economy produces two goods using three factors of production, capital, land. This chapter continues the theme of income redistribution as a consequence of international trade. Introduction the specific factors model international trade. Chapter 4 factor mobility and income redistribution. Factors of production is an economic term that describes the inputs that are used in the production of goods or services in order to make an economic profit. Lessons from the specific factors model of international trade jstor. This edition has been throughly revised to reflect the changes of todays global economic landscape. Books about socioeconomic factors what should i read next. Key takeaways the specific factor sf model is designed to evaluate the realworld phenomenon that some factors of production are more mobile between industries than others. Mpl x in proportion and will cause a shift in the curve xx see fig. Macroeconomic factor model a factors are observable economic and. The prize in economics, social democracy, and the market turn.
The specific factor sf model was originally discussed by jacob viner and it is a variant of the ricardian model. Factor analysis principal components analysis statistical factor models. L represents the average elasticity of demand for labor in the economy. Tariffs and the skilled wage gap in a model with 458 industries. Ty conf au megawati megawati au arief maulana au mia angelina setiawan py 2020 da 20200212 ti eticketing consumer behavior model from the perspective of technology acceptance factor, eservice quality and specific holdup cost bt 4th international conference on management, economics and business icmeb 2019 pb atlantis. There are a number of points that we have to keep in mind. Equilibrium in the labor market pm x mplm pf x mplf w. Specificfactor model aka ricardoviner essential dn pp. The production possibility frontier in the specific factors model the specific factors model.
A brand of neoclassical economics established in vienna during the late 19th century and the first half of the 20th century. International economics is written by two of the worlds preeminent economists. Search the worlds most comprehensive index of fulltext books. Linear factor model macroeconomic factor models fundamental factor models statistical factor models. Many applications lie at the center of policy questions raised by the recent financial crises, such as the connections between yields on government debt, credit risk, inflation, and economic growth. Introduction the specific factors model international. Chapter 1 is taken from the supplement to chapter 5 of the third edition of the textbook. A multifactor model is a financial model that employs multiple factors in its computations to explain market phenomena andor equilibrium asset prices. For example, a model with some factor mobility between countries say capital into a foreign enclave is discussed for both model types. Suppose the output of both products requires labor and capital as factor inputs.
The specific factor model assumes that an economy produces two goods using two factors. A dynamic specificfactors model of international trade nber. Jones university of rochester most undergraduates in their first year in economics have been exposed to an important ingredient in the specific factors model, a model in which each industry employs some factor used only in that particular industry. Statistical factor model a factors are unobservable and extracted from asset returns factor model speci. The first half of the course develops some familiar models from an advanced perspective including the ricardian, the specific factors ricardoviner and heckscherohlin models, as well as the general threefactor twosector model. The pattern of trade and comparative advantage in the specific factor model is determined by the. The magnification effect for the specific factor model is analogous to the magnification effect for prices demonstrated in the heckscherohlin model. A definitive ordering of the percentage changes in all goods and factor prices in a two good specific factor model was derived mathematically by jones 1971. Land and capital are both specific factors that can be used only in the production of one good. The arbitrage pricing theory being one of the common types of financial models is based on the following assumptions asset returns can be described by a linear factor model. Hi everyone, if you have studied about specific factors model, you may know that mpl x p w, which means the wage of a labor equals to. In an ho model, both factors are assumed to be freely mobilethat is, neither factor is specific to an industry.
In the ricardian model presented in chapter 2, it is assumed that workers can move freely and costlessly to another industry. Econ 441 alan deardorff problem set 4 answers specific factors models page 5 of 5 fallen. The essence of economics lies in the fact that resources are scarce, or at least limited, and that not all human needs and desires can be met. A dynamic specificfactors model of international trade. Bibliography economic conditions economics social change socioeconomic factors knowledge, sociology of civilization, modern organisation and administration social systemsgrowth international relationsforecasting forecasting economic developmentsociological aspects world politics information society economic. Endogenous number of lobby groups in a specific factor trade. Specific factor model, chapter 3 in the simple version of the specific factor model, there are two sectors goods, one factor labor that is perfectly mobile between the two sectors, and one fixed or specific factor in each sector. One factor of production no distributional conflicts trade not affected by endowments like land or capital factor moves costlessly from producing one good to another. Hence the model is sometimes referred to as the ricardoviner model.
Fqs are the factor surprises, the betas b are the sensitivities of the stocks to the factors, and epsilon is the firmspecific surprise. This section provides the schedule of readings by session and topic, including both essential and recommended readings. The specific factor sf model was originally discussed by jacob viner, and it is a variant of the ricardian model. This is a class that discusses both theory and empirical analysis. Assetfirmspecific risk shall possibly be eliminated by diversification. Plato recognized the economic basis of social life and in his republic organized a model society on the basis of a careful division of labor. Tariff elimination and the wage gap in an industrial specific factors model. The first half of the course develops some familiar models from an advanced perspective including the ricardian, the specific factors ricardoviner and heckscherohlin models, as well as the general three factor twosector model. Eticketing consumer behavior model from the perspective of. Learn the basic assumptions and results of the specific factor sf model. It is this view that is presented in most textbooks. The methods for static factor models can be readily extended to estimate the number of dynamic factors. The specific factors model allows trade to affect income distribution.
Labor is therefore a mobile factor that can be used in either sector. The specific factor model analyses also the effect of changes in prices of the commodities upon the returns of the factors. Hence, the ho model is a longrun model, whereas the specific factors model is a short run model in which capital and land inputs are fixed but labor is a variable input in production. Excel models for trade theory from utah state university, department of economics and finance. Specific factors model, part ii economics 181, international trade i. Unlike the ricardian model, however, the specific factors model allows for the existence of factors of production besides labor. A specific factor model of ftaa and north carolina textile and apparel. The specific factor model of trade international economics. Factorbased expected returns, risks and correlations.
Changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and the composition of output as they do in the static specificfactors model. List of books and articles about economic modeling. The model was later developed and formalized mathematically by ronald jones 1971 and michael mussa 1974. Chapter 10 specific factor models and dynamics in international. In the first stage, the consumer that owns a specific factor decides whether to organise or not in pressure groups. Assuming constant returns to scale, the marginal product of labor depends only on the ratio of factors, and therefore the marginal product curve shifts horizontally by the percentage change in the specific factor, as shown. Factor models are statistical models that represent instrument returns by a weighted set of common factors plus an instrumentspecific factor. Unlike the ricardian model, the specific factors model allows for the existence of factors of production. Specific factors model lecture notes from lusem nekh72 at lund university. It was due to jacob viners interest in explaining the migration of workers from the rural to urban areas after the industrial revolution. The ricardian model is named after david ricardo, who, in his book, the principles of political economy and taxation, 1817, discussed the concept of comparative advantage, a concept that has been fundamental for 200 years in the developments in international trade theory. Once the second is recognized the supply of capital and evaluation of land can be derived from underlying intertemporal optimization behavior. Endogenous number of lobby groups in a specific factor. Since the mobility of factors in response to any economic change is likely to increase over time, we can interpret the immobile factor model results as shortrun effects, the sf model results as mediumrun effects, and the ho.
List of books and articles about economic modeling online. The following books are cited in the reading list by the abbreviations indicated. The relative performance of the dynamic factor model increases with t. Although the specific factors model only entered the literature fairly recently, some economists have argued that it is in fact the model used by the classical. Consider a specific factor model of international trade. Factor models are statistical models that represent instrument returns by a weighted set of common factors plus an instrument specific factor.
The authors argue that in 1969 the swedish business elite managed to acquire the nobel name for a prize in economics for the purpose of exaggerating the scientific authority of marketliberalism to overturn social democracy. This in turn means that mp ky must have risen, and therefore that r y has gone up. Suppose the price of x commodity rises, it will raise the value of marginal product of x, i. The reason we investigate the specific factor model in a dynamic framework is that there. He has been teaching international trade and finance for more than twenty five years at gw and as an adjunct for cornell universitys washington, d. Indeed, suppose the mobile factor is not labor, but rather some intermediate good that is produced by all of the specific factors. The specific factors model assumes 3 factors, 2 goods steel and corn. An increase in the endowment of a specific factor in a sector makes labor in that sector more productive. Aristotle, too, attributed great importance to economic security as the basis for social and political health and saw the owner of a middlesized plot of land as the. Dynamic factor models dfm constitute an active and growing area of research, both in econometrics, in macroeconomics, and in finance. Huntsman school of business department of economics and finance working paper 200906, but because solver is used the production. Jacob viner 18921970 first examined the specific factors model, which is a. The law of comparative advantage describes how, under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage in an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.
Both the real trade portion of the book and the monetary portion are divided into a core of chapters focused on theory, followed by chapters applying the theory to major policy questions, past and current. Based on t r dfm t r cfm, the relative performance of the dynamic model ranges from 1% better goodness of fit compared to the nondynamic version when n 10, p 5 and t 3 to 9% when n 300, p 15 and t 15. Two factors are specific to each of the two goodssfor example, capital is specific to steel and land is specific to corn. In a dynamic economy land and capital serve not only as factors of production but as assets which individuals use to transfer income from workinq periods to. One factor is assumed to be mobile across sectors usually labor, but it could be something else. Changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and the composition of output as they do in the static specific factors model. Labor is mobile between these two sectors but capital is specific to manufacturing and land is specific to agriculture. Only the return to mobile labor is not so magnified. The basic goal of this paper is to develop an endogenous trade policy model in the grossman and helpman 1994 tradition that could endogenise the number of lobby groups in the economy. This file contains an excel spreadsheet for simulating the specific factors model using solver. Consider an economy with two perfectly competitive industries, textiles and steel.
This book is licensed under a creative commons byncsa 3. The classical model and the specific factors model springerlink. As in the immobile factor model, the factor specific to the export industry benefits, while the factor specific to the importcompeting industry loses. In this paper we have made an attempt to explain the observed rising inequality between unskilled and skilled wages, or, fall in relative wages of unskilled labour within a general equilibrium framework by introducing specific factors and non traded intermediate goods. Steve suranovic is an associate professor of economics and international affairs at the george washington university gw in washington, d. Dynamic factor analysis for multivariate time series. Whereas labor is a mobile factor that can move between sectors, these other. The specific factors model international trade in the specific factors model income distribution and the gains from trade the political economy of trade. Further details on specific factors chapter organization. The dynamic factor model considers the case in which lags of factors also directly a ect x it. Factor models definition, types what are factor models. Factor models for asset returns university of washington. A multi factor model is a financial model that employs multiple factors in its computations to explain market phenomena andor equilibrium asset prices.
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