Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/24867
Authors: 
Gundlach, Erich
de Vaal, Albert
Year of Publication: 
2008
Series/Report no.: 
Kiel Working Paper 1471
Abstract: 
Factor endowments are usually taken as given in trade theoretical analyses of technological change. We use the Deardorff (1974) diagram to show how the steady state capital labor ratio endogenously adjusts to technology shocks in a two-sector small open economy, an effect which has largely been neglected in trade theory literature. We show that ignoring the endogeneity of the capital labor ratio with respect to technology shocks leads to biased predictions of changes in sectoral production and trade. Imposing stylized facts of growth as restrictions, we assess the relative size of the implied prediction bias that appears to matter for empirical studies of trade.
Subjects: 
Deardorff diagram
technology shock
factor endowments
factor bias
sector bias
JEL: 
F11
O41
Document Type: 
Working Paper

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