Description: Rybczynski theorem suggests that if in a country the availability of one factor increases (suppose labour supply increases for whatever reason) while other factor's availability remains unchanged. the nations' output (and as a result export) of the good the production of which requires the intensive use of such factor, will increase and the output of the good that requires the intensive use of other factor will decline. The theory works under certain assumptions that are as under:
1. its 2X2X2 model, that means two countries, two goods, and two factors of production.
2. Factor price as well as goods' price remain unchanged.
In such situation if there occurs the increase in the supply of one factor alone, say labour, increased amount of labour will have to be combined with the same amount of labour. Meaning thereby K / L (capital - labour ratio) will go down which effectively means decline in marginal productivity of labour (MPL). Declining MPL calls for lowering the wage rate which is not possible under assumption. The only course available to the country to guard against the declining MPL is to maintain K / L at the same rate at which it was prior to the increase in the supply of labour which is possible only when labour in withdrawn from the production of capital intensive good. This causes an increase in the output and export of labour intensive good and decline in the output of the capital intensive good. The same will happen with capital intensive good if the supply of other (capital) increases while the labour availability remains unchanged.
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20 сен 2024
