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Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital

International Trade & the World Economy;  Charles van Marrewijk. CHAPTER 6; PRODUCTION VOLUME. Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions.

macaulay-velazquez
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Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital

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  1. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 6; PRODUCTION VOLUME Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions

  2. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 6; PRODUCTION VOLUME Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions

  3. International Trade & the World Economy;  Charles van Marrewijk Introduction Francis Edgeworth (1845-1926)

  4. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 6; PRODUCTION VOLUME Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions

  5. International Trade & the World Economy;  Charles van Marrewijk Rybczynski • Rybczynski proposition • In a neo-classical framework with 2 final goods (both produced), 2 factors of production, and constant prices of the final goods, an increase in the supply of one of the factors of production results in: • increased production of the final good that uses this factor of production relatively intensively, and • reduced production of the other final good • Thus, if the production of manufactures is capital intensive and the capital stock increases this leads to an increased production of manufactures and a reduced production of food

  6. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 6; PRODUCTION VOLUME Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions

  7. International Trade & the World Economy;  Charles van Marrewijk The Edgeworth Box

  8. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 6; PRODUCTION VOLUME Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions

  9. International Trade & the World Economy;  Charles van Marrewijk The contract curve

  10. International Trade & the World Economy;  Charles van Marrewijk The contract curve The curvature of the contract curve depends on the difference in capital intensity for the production of food and manufactures

  11. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 6; PRODUCTION VOLUME Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions

  12. International Trade & the World Economy;  Charles van Marrewijk The distribution of labor and capital For given prices of the final goods the wage-rental ratio does not change (FPE result). Given the wage-rental ratio, cost-minimization determines the optimal capital-labor ratio for production of food and manufactures. Expansion and contraction of production for food and manufactures does not affect the optimal capital labor ratio (straight lines) The distribution of capital and labor is then determined by the full employment conditions (all capital and labor should be used), that is the point of intersection of the expansion paths in the Edgeworth Box

  13. International Trade & the World Economy;  Charles van Marrewijk The distribution of labor and capital Impact of increased labor force (Ryb)

  14. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 6; PRODUCTION VOLUME Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions

  15. International Trade & the World Economy;  Charles van Marrewijk Application: Russian immigrants in Israel Period 1989-96: immigration of Jews from Russia into Israel Russian Jews had better education Result: increased output of skill-intensive goods (Ryb); explains up to 90% of factor absorption LTH = Less Than Highschool; HG = Highschool Graduate; SC = Some College; CG = College Graduate

  16. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 6; PRODUCTION VOLUME Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions

  17. International Trade & the World Economy;  Charles van Marrewijk Conclusions • Neo-classical model: • Increased supply of capital leads to increased production of capital-intensive good (Ryb) • Magnification effect • Use Edgeworth Box and contract curve • Application: absorption of change in labor supply composition as a result of immigration from Russia • Unskilled-labor intensive exports mainly in Souteast Asia and Central Europe (next slide)

  18. International Trade & the World Economy;  Charles van Marrewijk Conclusions Unskilled labour intensive man.; share of exports (%), 1998; Source: ITC

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