Factor analysis principal components analysis statistical factor models. Factors of production is an economic term that describes the inputs that are used in the production of goods or services in order to make an economic profit. The specific factors model assumes 3 factors, 2 goods steel and corn. A specific factor model with intermediate goods, centre for international trade and development, jawaharlal nehru university, new delhi discussion papers 1, centre for international trade and development, jawaharlal nehru university, new delhi, india. Factorbased expected returns, risks and correlations. In an ho model, both factors are assumed to be freely mobilethat is, neither factor is specific to an industry. A dynamic specificfactors model of international trade nber. It was due to jacob viners interest in explaining the migration of workers from the rural to urban areas after the industrial revolution. Endogenous number of lobby groups in a specific factor.
The specific factor sf model was originally discussed by jacob viner and it is a variant of the ricardian model. L represents the average elasticity of demand for labor in the economy. The specific factor model assumes that an economy produces two goods using two factors. Since p x is also unchanged, this is a real increase. It is this view that is presented in most textbooks. Excel models for trade theory from utah state university, department of economics and finance. The dynamic factor model considers the case in which lags of factors also directly a ect x it.
Suppose the price of x commodity rises, it will raise the value of marginal product of x, i. Dynamic factor analysis for multivariate time series. Ty conf au megawati megawati au arief maulana au mia angelina setiawan py 2020 da 20200212 ti eticketing consumer behavior model from the perspective of technology acceptance factor, eservice quality and specific holdup cost bt 4th international conference on management, economics and business icmeb 2019 pb atlantis. International trade theory and competitive models world. The model also suggests that while trade may increase wage inequality, this does not imply that poverty increases as wages of unskilled workers increase. A dynamic specificfactors model of international trade. Many applications lie at the center of policy questions raised by the recent financial crises, such as the connections between yields on government debt, credit risk, inflation, and economic growth. Factor models are statistical models that represent instrument returns by a weighted set of common factors plus an instrument specific factor. Macroeconomic factor model a factors are observable economic and.
A brand of neoclassical economics established in vienna during the late 19th century and the first half of the 20th century. Equilibrium in the labor market pm x mplm pf x mplf w. An increase in the endowment of a specific factor in a sector makes labor in that sector more productive. The ricardoviner model, also known as the specific factors model, is an extension of the ricardo model used in international trade theory. In this paper we have made an attempt to explain the observed rising inequality between unskilled and skilled wages, or, fall in relative wages of unskilled labour within a general equilibrium framework by introducing specific factors and non traded intermediate goods. This is a class that discusses both theory and empirical analysis. In the ricardian model presented in chapter 2, it is assumed that workers can move freely and costlessly to another industry. The methods for static factor models can be readily extended to estimate the number of dynamic factors. The specific factors model allows trade to affect income distribution. Based on t r dfm t r cfm, the relative performance of the dynamic model ranges from 1% better goodness of fit compared to the nondynamic version when n 10, p 5 and t 3 to 9% when n 300, p 15 and t 15. The magnification effect for the specific factor model is analogous to the magnification effect for prices demonstrated in the heckscherohlin model. The specific factor model analyses also the effect of changes in prices of the commodities upon the returns of the factors.
The threefactor specific factors model of an economys production po. Search the worlds most comprehensive index of fulltext books. Two factors are specific to each of the two goodssfor example, capital is specific to steel and land is specific to corn. The important ingredient is the identity of mobile and. Unlike the ricardian model, the specific factors model allows for the existence of factors of production. Statistical factor model a factors are unobservable and extracted from asset returns factor model speci. The first half of the course develops some familiar models from an advanced perspective including the ricardian, the specific factors ricardoviner and heckscherohlin models, as well as the general threefactor twosector model. Chapter 10 specific factor models and dynamics in international. Indeed, suppose the mobile factor is not labor, but rather some intermediate good that is produced by all of the specific factors. 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.
The relative performance of the dynamic factor model increases with t. Chapter 1 is taken from the supplement to chapter 5 of the third edition of the textbook. Econ 441 alan deardorff problem set 4 answers specific factors models page 5 of 5 fallen. Steve suranovic is an associate professor of economics and international affairs at the george washington university gw in washington, d. International economics is written by two of the worlds preeminent economists. Learn the basic assumptions and results of the specific factor sf model. Fqs are the factor surprises, the betas b are the sensitivities of the stocks to the factors, and epsilon is the firmspecific surprise. Changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and the composition of output as they do in the static specific factors model. Plato recognized the economic basis of social life and in his republic organized a model society on the basis of a careful division of labor.
Eticketing consumer behavior model from the perspective of. 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. This section provides the schedule of readings by session and topic, including both essential and recommended readings. Factor models definition, types what are factor models. The specific factor model of trade international economics.
Hi everyone, if you have studied about specific factors model, you may know that mpl x p w, which means the wage of a labor equals to. Lessons from the specific factors model of international trade jstor. As in the immobile factor model, the factor specific to the export industry benefits, while the factor specific to the importcompeting industry loses. The classical model and the specific factors model springerlink. Introduction the specific factors model international trade. Linear factor model macroeconomic factor models fundamental factor models statistical factor models. Bibliography economic conditions economics social change socioeconomic factors knowledge, sociology of civilization, modern organisation and administration social systemsgrowth international relationsforecasting forecasting economic developmentsociological aspects world politics information society economic.
Hence the model is sometimes referred to as the ricardoviner model. The economy produces two goods using three factors of production, capital, land. Aristotle, too, attributed great importance to economic security as the basis for social and political health and saw the owner of a middlesized plot of land as the. This book is licensed under a creative commons byncsa 3. This file contains an excel spreadsheet for simulating the specific factors model using solver.
Factor models are statistical models that represent instrument returns by a weighted set of common factors plus an instrumentspecific factor. The reason we investigate the specific factor model in a dynamic framework is that there. Labor is mobile between these two sectors but capital is specific to manufacturing and land is specific to agriculture. Further details on specific factors chapter organization. A specific factor model of ftaa and north carolina textile and apparel. The arbitrage pricing theory being one of the common types of financial models is based on the following assumptions asset returns can be described by a linear factor model. Labor is therefore a mobile factor that can be used in either sector. Tariffs and the skilled wage gap in a model with 458 industries.
Land and capital are both specific factors that can be used only in the production of one good. Dynamic factor models dfm constitute an active and growing area of research, both in econometrics, in macroeconomics, and in finance. Assetfirmspecific risk shall possibly be eliminated by diversification. One factor is assumed to be mobile across sectors usually labor, but it could be something else. The first half of the course develops some familiar models from an advanced perspective including the ricardian, the specific factors ricardoviner and heckscherohlin models, as well as the general three factor twosector model. Suppose the output of both products requires labor and capital as factor inputs. Factor models for asset returns university of washington. This chapter continues the theme of income redistribution as a consequence of international trade.
The model was later developed and formalized mathematically by ronald jones 1971 and michael mussa 1974. Jacob viner 18921970 first examined the specific factors model, which is a. Changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and the composition of output as they do in the static specificfactors model. So far we have only considered the static factor model, where the relationship between x it and f t is static. Hence, the ho model is a longrun model, whereas the specific factors model is a short run model in which capital and land inputs are fixed but labor is a variable input in production. 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. The prize in economics, social democracy, and the market turn. Books about socioeconomic factors what should i read next. The law of comparative advantage describes how, under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage in an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i. The specific factors model international trade in the specific factors model income distribution and the gains from trade the political economy of trade. Specific factor model, chapter 3 in the simple version of the specific factor model, there are two sectors goods, one factor labor that is perfectly mobile between the two sectors, and one fixed or specific factor in each sector. This in turn means that mp ky must have risen, and therefore that r y has gone up. He has been teaching international trade and finance for more than twenty five years at gw and as an adjunct for cornell universitys washington, d.
Consider an economy with two perfectly competitive industries, textiles and steel. Fundamental factor model a factors are created from observerable asset characteristics 3. In the first stage, the consumer that owns a specific factor decides whether to organise or not in pressure groups. This edition has been throughly revised to reflect the changes of todays global economic landscape. List of books and articles about economic modeling online. Unlike the ricardian model, however, the specific factors model allows for the existence of factors of production besides labor. Only the return to mobile labor is not so magnified. 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. A multi factor model is a financial model that employs multiple factors in its computations to explain market phenomena andor equilibrium asset prices. The following books are cited in the reading list by the abbreviations indicated. There are a number of points that we have to keep in mind.
The basic goal of this paper is to develop an endogenous trade policy model in the grossman and helpman 1994 tradition that could endogenise the number of lobby groups in the economy. 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. List of books and articles about economic modeling. The specific factor sf model was originally discussed by jacob viner, and it is a variant of the ricardian model. Huntsman school of business department of economics and finance working paper 200906, but because solver is used the production. Mpl x in proportion and will cause a shift in the curve xx see fig.
Whereas labor is a mobile factor that can move between sectors, these other. Consider a specific factor model of international trade. For example, a model with some factor mobility between countries say capital into a foreign enclave is discussed for both model types. A multifactor model is a financial model that employs multiple factors in its computations to explain market phenomena andor equilibrium asset prices.
Specific factors model, part ii economics 181, international trade i. The authors argue that in 1969 the swedish business elite managed to acquire the nobel name for a prize in economics for the purpose of exaggerating the scientific authority of marketliberalism to overturn social democracy. 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. Specificfactor model aka ricardoviner essential dn pp. Key takeaways the specific factor sf model is designed to evaluate the realworld phenomenon that some factors of production are more mobile between industries than others. Chapter 4 factor mobility and income redistribution. 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.
The ricardian model is named after david ricardo, who, in his book, the principles of political economy and taxation, 1817, discussed the concept of comparative advantage, a concept that has been fundamental for 200 years in the developments in international trade theory. Specific factors model lecture notes from lusem nekh72 at lund university. Tariff elimination and the wage gap in an industrial specific factors model. The pattern of trade and comparative advantage in the specific factor model is determined by the. A definitive ordering of the percentage changes in all goods and factor prices in a two good specific factor model was derived mathematically by jones 1971. Endogenous number of lobby groups in a specific factor trade. The production possibility frontier in the specific factors model the specific factors model. Introduction the specific factors model international. Once the second is recognized the supply of capital and evaluation of land can be derived from underlying intertemporal optimization behavior.
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