Rybczynski's Theorem in the Heckscher-Ohlin World - Anything Goes
6 Pages Posted: 23 Jan 2010
Date Written: May 19, 2009
We demonstrate that Rybczynski’s classic comparative statics can be reversed in a Heckscher-Ohlin world when preferences in each country favor the exported commodity. This taste bias has empirical support. An increase in the endowment of a factor of production can lead to an absolute curtailment in the production of the commodity using that factor intensively, and an absolute expansion of the commodity using relatively little of the same factor. This outcome - which we call “Reverse Rybczynski” - implies immiserizing factor growth. We present a simple analytical example that delivers this result with unique pre- and post-growth equilibria. In this example, production occurs within the cone of diversification, such that factor price equalization holds. We also provide general conditions that determine the sign of Rybczynski’s comparative statics.
Keywords: Rybczynski theorem, Heckscher-Ohlin, Factor endowments, Immiserizing growth, Transfer paradox
JEL Classification: F11, D51, D33
Suggested Citation: Suggested Citation