TITLE:
Income Distribution and Terms-of-Trade under Generalized Returns to Scale and Capital Accumulation: Implications Using Classical Equilibrium Condition
AUTHORS:
William Darity, Bidisha Lahiri
KEYWORDS:
Generalized Returns to Scale, Surplus, Produced Means of Production, North-South Trade
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.7,
October
11,
2019
ABSTRACT: This paper examines the implications of generalized
returns to scale on the long-period equilibrium in an economy with 2 goods and
2 inputs where one of the inputs is a produced means of production. The
Classical definition of long-period equilibrium defined by profit rates being
equalized across sectors is used for closure. The model is initially
characterized for a closed economy and then extended to a flexible-wage-North
and surplus-labor-South model of trade where the North produces only capital
and the South produces the consumption good using Northern capital. Neither
full employment in the North nor balanced-growth of the integrated economy
emerges under
non-constant returns to scale. We characterize income distribution between
labor and capital and movements of terms-of-trade between North and South.