Trade effects based on general equilibrium

• Main Author: Baoping GUO
• Format: Article
• Language: English
• Published: General Association of Economists from Romania 2019-03-01
• Series: Theoretical and Applied Economics
• Subjects: E; Factor price equalization; Heckscher-Ohlin; Equilibrium price; equalized factor price
• Online Access: http://store.ectap.ro/articole/1381.pdf

The Rybczynski theorem describes the trade effect within production analyses between factor endowments and outputs. The Stolper-Samuelson theorem focuses on cost analyses between factor reward and commodity price. This paper examines the trade effect of changes of factor endowments on prices, based on general equilibrium. The study shows that changes of factor endowments cause domestic output changes (the Rybczynski effect), which affect output prices and factor prices (the Stolper-Samuelson effect). It is like a chain of effects that the Rybczynski’s trade effect triggers the Stolper-Samuelson’s trade effect. The analysis of this paper shows that a small increase of a factor endowment of any country rewards another factor and the commodity using the latter factor intensively. It displays a tuneful circle. Trade brings a well-balanced development to the world.