#### Date of Award

1990

#### Degree Type

Dissertation

#### Degree Name

Doctor of Philosophy

#### Abstract

Traditional models of international trade theory typically assume that factors of production are in fixed supply. The objective of the thesis is to examine the effects upon a number of well-known comparative statics results when the levels of supply of some factors of production are allowed to adjust endogenously. A dual trade model is used to incorporate endogenous factor supply into a general m-good, n-factor trade model, to allow for as general an analysis as possible. The traditional assumptions of constant returns to scale in production and perfect competition in all markets are retained so as to concentrate on the effects of variable factor supply. It is assumed that there exists a single representative consumer who owns all factors of production and has preferences over produced goods and some of the factors of production. The effects of an exogenous world price shock on output supply, output demand, and net exports in a small open economy where some factors are endogenously supplied are derived and compared to the comparable effects in an economy where all factor supplies are fixed. Conditions are found under which the effects of a world price shock on output supply, output demand, and net exports are magnified when some factors are endogenously supplied. The effect of variable factor supply on the probability of factor price equalization is described. The effect of an output price shock on input prices, and of an endowment change on output supplies, is examined when factor supplies are variable. The model is modified to incorporate the presence of trade and factor taxes. Conditions are described under which a given trade tax change has a larger welfare effect in a small open economy when factor supplies are variable. When some factors are taxed, variable factor supply is sufficient to imply the existence of optimal second-best trade taxes in a small open economy. All theoretical results are repeated using a simple numerical general equilibrium model, to illustrate quantitatively how the results of the comparative statics experiments change as factor supply elasticities varies.

#### Recommended Citation

Waschik, Robert G., "International Trade Theory With Endogenous Factor Supply" (1990). *Digitized Theses*. 1968.

https://ir.lib.uwo.ca/digitizedtheses/1968