On a Theme by Heckscher-Ohlin: A Diffusion Model for Spatial Dynamics in Factor Prices

Fariba Hashemi

Swiss Federal Institute of Technology, Lausanne, Switzerland.

DOI: 10.4236/ti.2012.33017                

Abstract

An analytical study is presented for the cross-sectional distribution of factor prices over time and across space. A drift-diffusion model is proposed to describe the dynamic process governing the fluctuations around the equilibrium distribution. The model is mechanical and descriptive in nature, and illustrates that the growth distribution of factor prices can be generated by a single stochastic process that builds upon the theory of diffusion processes. An empirical application of the proposed model, to the evolution of the distribution of incomes for 186 countries, recorded from 1993 up to 2007, illustrates the applicability of the proposed method and suggests that diffusion may be a preferable technique for the analysis of the spatial dynamics in factor prices.

Keywords

Factor Price Equalization; Cross-Sectional Distribution of Income; Diffusion

Conflicts of Interest

The authors declare no conflicts of interest.

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