1. Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions CHAPTER 6; PRODUCTION VOLUME International Trade & the World Economy;  Charles van Marrewijk

3. Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions CHAPTER 6; PRODUCTION VOLUME International Trade & the World Economy;  Charles van Marrewijk

4. Introduction International Trade & the World Economy;  Charles van Marrewijk Francis Edgeworth (1845-1926)

5. Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions CHAPTER 6; PRODUCTION VOLUME International Trade & the World Economy;  Charles van Marrewijk

6. Rybczynski International Trade & the World Economy;  Charles van Marrewijk Rybczynski proposition In a neo-classical framework with 2 final goods (both produced), 2 factors of production, and constant prices of the final goods, an increase in the supply of one of the factors of production results in: increased production of the final good that uses this factor of production relatively intensively, and reduced production of the other final good Thus, if the production of manufactures is capital intensive and the capital stock increases this leads to an increased production of manufactures and a reduced production of food

7. Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions CHAPTER 6; PRODUCTION VOLUME International Trade & the World Economy;  Charles van Marrewijk

8. The Edgeworth Box

9. Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions CHAPTER 6; PRODUCTION VOLUME International Trade & the World Economy;  Charles van Marrewijk

10. The contract curve International Trade & the World Economy;  Charles van Marrewijk

11. The contract curve International Trade & the World Economy;  Charles van Marrewijk The curvature of the contract curve depends on the difference in capital intensity for the production of food and manufactures

12. Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions CHAPTER 6; PRODUCTION VOLUME International Trade & the World Economy;  Charles van Marrewijk

13. The distribution of labor and capital International Trade & the World Economy;  Charles van Marrewijk For given prices of the final goods the wage-rental ratio does not change (FPE result). Given the wage-rental ratio, cost-minimization determines the optimal capital-labor ratio for production of food and manufactures. Expansion and contraction of production for food and manufactures does not affect the optimal capital labor ratio (straight lines) The distribution of capital and labor is then determined by the full employment conditions (all capital and labor should be used), that is the point of intersection of the expansion paths in the Edgeworth Box

14. The distribution of labor and capital International Trade & the World Economy;  Charles van Marrewijk Impact of increased labor force (Ryb)

15. Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions CHAPTER 6; PRODUCTION VOLUME International Trade & the World Economy;  Charles van Marrewijk

16. Application: Russian immigrants in Israel International Trade & the World Economy;  Charles van Marrewijk LTH = Less Than Highschool; HG = Highschool Graduate; SC = Some College; CG = College Graduate Period 1989-96: immigration of Jews from Russia into Israel Russian Jews had better education Result: increased output of skill- intensive goods (Ryb); explains up to 90% of factor absorption

17. Introduction Rybczynski The Edgeworth Box The contract curve The distribution of labor and capital Application: Russian immigrants in Israel Conclusions CHAPTER 6; PRODUCTION VOLUME International Trade & the World Economy;  Charles van Marrewijk

18. Conclusions International Trade & the World Economy;  Charles van Marrewijk Neo-classical model: Increased supply of capital leads to increased production of capital- intensive good (Ryb) Magnification effect Use Edgeworth Box and contract curve Application: absorption of change in labor supply composition as a result of immigration from Russia Unskilled-labor intensive exports mainly in Souteast Asia and Central Europe (next slide)

19. Conclusions International Trade & the World Economy;  Charles van Marrewijk Unskilled labour intensive man.; share of exports (%), 1998; Source: ITC