Classical Trade Theory. Globalization: It’s the Factor Prices!. 2 x 2 x 2 Model. Two goods, two countries, two factors of production: neat analytical framework
Globalization: It’s the Factor Prices!
R = R* = f’(k) + ln[Q(t+1)]-ln[Q(t)]=
f’(k*) + ln[Q*(t+1)]-ln[Q(t)]
Q and Q*: real share prices of claims on capital, f’(k) and f’(k*) marginal productivity of capital
log(Y) = ln(A) + alpha *ln(K) + (1-alpha)ln(L), this is Cobb-Douglas function in logarithmic form
If A is constant, we can describe growth,
Diff(y) = alpha Diff(k) + (1-alpha) Diff(l),
Where y is the log of Y, k log of K, l log of L,
And Diff is the difference operator.
Diff(y) = Diff(a) + alpha Diff(k) + (1-alpha) Diff(l).
According to many studies, the TFP effect explains more than half of growth of industrial countries