ABSTRACT
In previous chapters, factor growth and technological change has been assumed to be zero. Allowing resources to expand and technology to improve suggests several implications for patterns of trade. An equal increase in both inputs generates an even outward shift of the production possibilities curve, indicating that larger amounts of both goods can be produced. When growth occurs in only one input, however, the PPC shifts but the change is biased toward the good using the increased factor intensively. For example, suppose the labor force participation rate of women in country A increases. This shifts the PPC toward the labor-intensive good, cloth. Country A’s production of cloth increases. With unchanged demand conditions, the additional supply of cloth causes a decline in the price of cloth. If cloth is A’s export good, the growth in the labor force decreases the price of the export good and worsens country A’s terms-of-trade.
