The standard Hecksher-Ohlin model predicts that
trade liberalization leads to a decline in the rate of return of the scarce
factor of production. However, the empirical evidence of the falling labor
share in some developing countries contrasts with the theory. We show that if a
simple change in technology is introduced into the standard model, conditions
exist for the rate
of return of the scarce factor of production to increase. In particular, the
price of the exported good and the amount of capital the country owns can serve
as determinants whether the rate of return of the abundant factor will increase.
Cite this paper
Zuleta, H. and Pogorelova, L. (2014) Trade, Technology, Income Distribution and Growth. Theoretical Economics Letters
, 488-496. doi: 10.4236/tel.2014.46061
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