Inter-Industrial Factor Allocation in the Short and Long Runs in Chamberlinian Monopolistic Competition
This study reviews the allocation of factors among industries distinguishing between the short run and long run in a monopolistically competitive world. Without any conditions on scale economy, non-homotheticity, and factor intensity, it is shown that the long-run equilibrium characterized by factor-price equalization between industries is always locally stable. In addition, the direction of non-homothetic bias does not have qualitative effects on the allocation of factors, while it works as key elements to determine the direction of the change in relative industry size. The direction of the change in factor allocation mainly depends on the gross substitutability of factors which is magnified by non-homotheticity and scale economies.
Non-homotheticity, Scale economy, Factor intensity, Elasticity of substitution
F11, L13, L16
Research Institute for Economics and Business Administration,
Rokkodai-cho, Nada-ku, Kobe