Roy J. Ruffin

International factor movements

Publisher Summary This chapter discusses international factor movements in todays world such as labor, capital movements, and direct investment and examines the appropriate conception of capital movements. Physical capital is transferred abroad through a trade surplus and corresponds to the accumulation of ownership claims against capital located in a foreign country. Hence, the appropriate concept of international capital movements simply involves a change in the location but not the ownership of physical capital. In growth models, the trade surplus corresponding to the transfer of capital must be taken into account. In static models, there is a one-time stock adjustment in which a portion of a fixed stock of physical capital simply moves abroad. The chapter discusses income distribution and factor movements in a general setting of r factors and n goods. International factor movements alter the relative domestic supplies of productive factors and, hence, should change the internal distribution of income. The MacDougall–Kemp model is useful for making illustrative calculations of the impact of immigration on income distribution. The model is limited by the fact that it uses only two productive factors though it is easy to extend the model to more than two factors at the cost of losing its sharp predictive powers.

David Ricardo's Discovery of Comparative Advantage

David Ricardo’s Discovery of Comparative Advantage Roy J. Ruffin Abstract This paper argues that Ricardo’s discovery of the law of comparative advantage probably occurred in October 1816. The “Ricardo effect” served as a red herring to cause scholars to possibly misread Ricardo’s letters in a crucial period. The letters as well as his book tell a rather beautiful and remarkable story about Ricardo’s method of discovery. The modern reconstruction of Ricardo has also led to misunderstandings of his proof. Torrens cannot receive credit for discovery of the law because his statement of comparative advantage is too incomplete for easy scientific reproducibility, and does not even contain the key assumption of international factor immobility. “There’s place and means for every man alive.” William Shakespeare, All’s Well That Ends Well David Ricardo (1772-1823) probably discovered the law of comparative advantage around the first two weeks of October 1816. The date itself is not important, but his letters at the time reveal how Ricardo’s mind worked when he discovered the law. If my hypothesis is correct, the letters show his mind ranged over much of the terrain of trade theory—from factor price equalization conditions to the Ricardian model. I also conjecture that the hard part of his discovery was coming up with the key assumption of factor immobility. The logical nature of his proof is re-examined. Given the importance

Trade and factor movements with three factors and two goods

Abstract With three factors and two goods there are two ‘extreme’ and one ‘middle’ factor. Regardless of technical complementaries in the individual production functions, the extreme factors must be enemies and the middle factor the other factors friend with constant product prices.

International Technology Transfer: Who Gains and Who Loses?

When one country has a superior technology in all commodities, a Ricardian model with two goods and two countries is used to examine uncompensated transfers of superior technology in one or both goods. A transfer of the superior but second-best technology always benefits the advanced country because it was improting that good initially and now gets it cheaper. But the free gift of the first-best technology can also benefit the advanced country if a certain productivity condition is satisfied because that country may now export its former import good at an even better terms of trade.

Human capital, trade, and economic growth

Human Capital, Trade, and Economic Growth. — Human capital, because of its special role in innovative activity and technological progress, has formed the bedrock of the new theories of endogenous growth. However, it not only serves as an engine of growth but also as a productive input along with labor and physical capital. In this study, the authors find evidence of the importance of both roles of human capital. They also find that the relationship between growth and the external effects of human capital vary according to trade regime. When literacy rates are relatively high, open economies grow about 0.65 to 1.75 percentage points more than closed economies.ZusammenfassungHumankapital, Handel und Wirtschaftswachstum. — Wegen seiner besonderen Rolle bei Innovationen und technologischem Fortschritt bildet das Humankapital die Grundlage der neuen Theorien über endogenes Wachstum. Es dient aber nicht nur als Antriebskraft für das Wachstum, sondern ist auch ein produktiver Input wie Arbeit und physisches Kapital. In dieser Untersuchung finden die Autoren Anhaltspunkte für die Bedeutung der beiden Rollen des Humankapitals. Sie stellen außerdem fest, daß die Beziehung zwischen Wachstum und den externen Effekten des Humankapitals mit der Art des Außenhandelsregimes variiert. Bei relativ hohem Alphabetisierungsgrad wachsen offene Volkswirtschaften um 0,65 bis 1,75 Prozentpunkte schneller als geschlossene Volkswirtschaften.

Oligopoly and trade: what, how much, and for whom?

Abstract This paper integrates the Cournot oligopoly model with the Ricardian comparative advantage model. The Ricardian trade pattern is robust, and only can be reversed in extreme conditions. Trade volume increases substantially with increases in competition in world export industries. In a symmetrical world, a threshold level of competition determines whether capitalists as a group usually gain or lose from trade. Under all circumstances workers never lose even if a country has a comparative disadvantage in a perfectly competitive world industry, but workers gain less in that country than they do in the rest of the world.

Charity, Competition, and the Pricing of Doctors' Services

There are two basic explanations of price discrimination in medicine. The traditional explanation is that the American Medical Association enforces sufficient price discipline to apply the theory of a price-discriminating monopolist. Members of the AMA explain price discrimination by the operation of a charity. This paper develops a charity-competition model in which price discrimination emerges as a consequence of utility maximization by the individual doctor and the necessity of market equilibrium. It is shown that the charity model is more consistent with available empirical evidence than is the monopoly model.

Trade and Wages: A Deeper Investigation

A new presentation of the specific factors model shows how labor fares under international trade by considering how the price elasticity of the nominal wage rate responds to the terms of trade as well as factor endowments. The key empirical implication is that under a standard assumption about tastes it is straightforward to decompose the gains to labor into measurable terms of trade effects and production bias effects. This provides the basis for suggested time series studies contrasting the specific factors model with the Heckscher-Ohlin model. We then perform a new theoretical analysis of the specific factors model to compare how labor fares under autarky and free trade. Copyright

Quasi-Specific Factors: Worker Comparative Advantage in the Two-Sector Production Model

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.

Tariffs, the balance of payments, and the demand for money

Abstract This paper shows that in a small country the impact of a tariff on the balance of payments depends crutially on the role of relative prices in the demand function for money. An import (export) duty has a perverse impact on the balance of payments if importables (exportables) and money are net complements, but both import and export duties cannot have a perverse impact. A relation between the impact of export and import duties is also derived and is used to reestablish a well-known theorem of Meade on the equivalence of replacing import with export duties and currency depreciation.