This file contains an excel spreadsheet for simulating the specific factors model using solver. 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. Lessons from the specific factors model of international trade jstor. This book by lakey gave me a good sense of what an economy looks like whose purpose is not maximization of wealth by the wealthy, but freedom and equality and sustainability.
Specific factors model autarky equilibrium tangency. More important for current purposes, equations and say that brief periods when equity income is expected to. The famafrench threefactor model explains over 90% of the diversified portfolios returns, compared with the average 70% given by the capm within sample. The specific factor sf model is designed to evaluate the realworld phenomenon that some factors of production are more mobile between industries than others. Both the real trade and the monetary sections of this book are divided into a core of chapters focused on theory, followed by chapters applying the theory to major policy questions, past and contemporary. These assumptions place the sf model squarely between an immobile factor model and the heckscherohlin ho model. How the scandinavians got it right and how we can, too, by george lakey, 2016.
In an ho model, both factors are assumed to be freely mobilethat is, neither factor is specific to an industry. 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. The specific factors model is a canonical model that is very well suited to address distributional questions related to a range of economic policies, as it distinguishes multiple sectors in the economy that each employ a different mix of production factors such as labor and capital. We present a numerical version of the specific factors model of productiontrade in a small economy, built in excel. Macroeconomic policies in an open economy keynesian and general models. A dynamic specificfactors model of international trade nber. Richardoviner model news newspapers books scholar jstor june 2016 learn how and when to remove this template message. International economics krugman and obstfeld solution. The threefactor specific factors model of an economys production po. The economic model is a simplified, often mathematical, framework designed to illustrate complex processes.
The classical model and the specific factors model springerlink. Demandpull inflation is when the demand for products or services rises sharply and surpasses the available supplies of those goods. Yet it is also referred to as a shortrun version of the heckscherohlin model because a time span is short enough to render capital and land virtually fixed the production possibilities frontier in the specific factors model is concave to the origin. Huntsman school of business department of economics and finance working paper 200906, but because solver is used the production technology assumptions are less. Using nonlinear programming in international trade theory. They find positive returns from small size as well as value factors, high book tomarket ratio and related ratios. 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 retirement. The classical model and the specific factors model. In a dynamic economy land and capital serve not only as factors of production but as assets which individuals use to transfer income from.
In addition, a growing body of research has documented associations between social and cultural factors and health berkman and kawachi, 2000. Factor models are statistical models that represent instrument returns by a weighted set of common factors plus an instrument specific factor. 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. Different economists pose theories as to the types of inflation. The impact of social and cultural environment on health. This extension provides an even richer analysis of the income distribution effects of trade. In other words, the three factors used are smb small minus big, hml high minus. Introduction the specific factors model international trade. The chapter presents the analysis of the simplest model with no public sector goods and no regionspecific factors. Quantitative example this implies that mpl a mpl m a a t l a a m k l m a a t a m k. Further details on specific factors chapter organization. Yet it is also referred to as a shortrun version of the heckscherohlin model because a time span is short enough to render capital and land virtually fixed the production possibilities frontier in.
The specific factor model overview social sci libretexts. 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 economists in their discussion of the economic effects of the corn laws. It was due to jacob viners interest in explaining the migration of workers from the rural to urban areas after the industrial revolution. In this paper, panel ordinary least squares model of industrial grinding companies listed on belgrade stock exchange was used for examining the determinants of proftability. Its impossible and krugman just confuses everything by devoutly avoiding the marginal product concept. Received 12 may 2014 received in revised form august 2014 accepted 11 september 2014. This is followed by a section on modelling national economies, in which macroeconometric models for the eu member countries are analyzed, to find. The interesting part of the model is to examine what happens to the. Further, by leaving out the specific factors model, he confuses further the heckscher ohlin model, as people are then unable to appreciate how both models are in fact the same but one is for the longrun whereas the other for the shortrun. Fama and french were professors at the university of chicago booth school of business, where fama still resides. It differs from earlier work in that the solution is embedded in the sheet, making the use of the solver addin unnecessary. The specific factor model is used to demonstrate the effects of economic changes on labor allocation, output levels and factor returns. It covers the effects and causes of trade policy, including strategic trade policy, focusing on the incomedistribution effects of trade. It does that by assuming that one factor capital cannot move between industries, while the other factor labor can freely move.
The chapter presents the analysis of the simplest model with no public sector goods and no region specific factors. In response to popular demand, chapter 4 specific factors and income distribution in the short run reinstates the specific factors model of trade. Fixed factors and variable factors homework help in. A dynamic specificfactors model of international trade.
Even in this simplest case, some intervention by the public sector becomes necessary to make the market equilibrium equivalent to the social optimum, unless a particular pattern of rentalincome distribution between the two. The text presents an integrated treatment of ricardian, specific factors, factor endowments, and imperfect competition models of trade, along with indepth analysis of empirical evidence. Develop an understanding of the key drivers and metrics that influence your business so you can develop specific. The text presents an integrated treatment of ricardian, specific factors, factor endowments, and imperfect competition models of trade, along with indepth analysis of. This simple model predicts that firms with higher required equity returns, r, will have higher book. The ricardoviner model, also known as the specific factors model, is an extension of the ricardo model used in international trade theory. Its often caused, at least partially, by easier credit. Furthermore, a model suitable for an efficient budget management of a health service unit by applying goal programming method is analyzed, taking into account various socio economic factors. Agricultural production economics university of kentucky. Comparison of the military power of three countries before wwii. Many types of economic changes can be considered including a movement to free trade, the implementation of a tariff or quota, growth of the labor or capital endowment, or technological changes. Agricultural production economics second edition agricultural production economics second edition, amazon createspace 2012 is a revised edition of the textbook agricultural production economics published by macmillan in 1986 isbn 0023280603. 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. The economy produces two goods using three factors of production, capital, land.
Another important economic model is the production possibility frontier ppf. Unlike the ricardian model, the specific factors model allows for the existence of factors of production. This third edition incorporates new methods of analysis, recent empirical work, and developments in the international economy. If a firm wants to expand output in the shortrun, then it can employ more labourers, purchase more raw materials and can use more power.
In asset pricing and portfolio management the famafrench threefactor model is a model designed by eugene fama and kenneth french to describe stock returns. The specific factors model international trade in the specific factors model income distribution and the gains from trade the political economy of trade. Huntsman school of business department of economics and finance working paper 200906, but because solver is used the production technology assumptions are less restrictive. International economics, the bestselling textbook in the field, is written by two of the worlds preeminent economists. List of books and articles about economic modeling. 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. In 20, fama shared the nobel memorial prize in economic sciences. A multifactor model is a financial model that employs multiple factors in its computations to explain market phenomena andor equilibrium asset prices. 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. Chapter 10 specific factor models and dynamics in international. The specific factors model allows trade to affect income distribution. Static models of international trade based on the specificfactors model incorporate only the first of these. Introduction the specific factors model international.
A geometric comparison of the transformation loci with specific and. Frenchb,n a booth school of business, university of chicago, usa b tuck school of business, dartmouth college, hanover, nh 03750, usa article info article history. For this purpose, 62 observations of companies over the period of 2008 2014 were included. Develop an understanding of the key drivers and metrics that influence your. The reason we investigate the specific factor model in a dynamic framework is that there. The ricardoviner model, also known as the specific factors model, is an extension of the. The model features the most common graphical devices used to explain the model properties. 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. But, the generally accepted types of inflation are demandpull, costpush and monetary. Jacob viner 18921970 first examined the specific factors model, which is a. International economics krugman and obstfeld solution manual. List of books and articles about economic modeling online.
This model provides a simple and intuitively appealing account of why countries trade and for illustrating how trade creates clear losers as well as. In an immobile factor model, all the factors of production are specific to an industry and cannot be moved. Using the specificfactors model, explain why you might expe. Return on equity considered as a measure for proftability is a dependent variable whereas size, leverage. Then, a more general model is introduced, with this latter model allowing for both mobile and specific factors of production. Jones university of rochester most undergraduates in their first year in economics have been exposed to an important ingredient in the specificfactors model, a model in which each industry employs some factor used only in that particular industry. The prediction is consistent with the positive relation between average stock return and beme observed by fama and french 1992, 1993 and others. We shall then examine the specific factors model, which may be thought of in one way as a. An increase in the endowment of a specific factor in a sector makes labor in that sector more productive.