Question

What are the assumptions and conclusion of the rybczynski theorem? To what extent, will an increase of capital flows to the country with relative abundant of capital affect the outputs and labor employment?

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Answer 1

-:The Rybczynski Theorem;-

The Rybczynski Theorem says that if the endowment of some resource increases the industry that uses that resource most intensively will increase its ouotput while the other industry will decrease its output.The relative factor intensity is measured by the ratio of facator use in each industry.

The theorem suggests that unbalanced growth in factor supplies tends, at constant commodity price, to lead to strong asymmetric changes in output level of two types of indusries capital intensive and labour intensive. If the member of factors and commodities ae evenly matched and two commodities are notjointly produced, this asymmentry entails that growth in one factor, such as labout, acts as a force to cause an actual fall in the production of one commodity.

let us sppose that cloth is capital intensive and food is labour intensive. Now if capitall stock grows, the output of cloth will increase. However, the production of more cloth will lead to an increase in the demand for labour.

If more labour is not used with capiatal, the productivity of labour is bound to fall. As a result, there will be shortage of labour in the labour intensive sector. And the end result is a fall in the output of food. Thus capital accumulation will lead to a fall in output of labour industry.

As Rybczynski theorem states that an increase, say, in the endownment of labour will invrease the output of the labour intensive industry and decrease that of the capital intensive industry. The converse is also true. An increase in the endowment of capital, ceteris paribus, will increase the output of the capital intensive cloth industry and decrease that of the labouor intensive food industry however all these repercussions will leave factor prices unchanged

The increase in the supply of one of the factor of production, other factors remaning the same, causses the output of the good using the accumulating factor intensively to increase and the output of the other good to decrease in absolute amount, provided that commodity and factor prices remain unchanged.

Assumptions of the Rybczynski Theorem:-

• The trade takes place between two countreis. The case of only one of two countris will discussed here.
• The given csountry is labour abundant and capital scarce.
• This country produces two commodities cloth and steel.
• The production of these commodities requires two factors labour and capital.
• Capital and labour are perfectly mobile, perfectly divisible and substitutable in some degree.
• Cloth is labour intensive good and steel is a capital intensive good.
• There are the conditions of perfect competition in the product and factor markets.
• The productions functions related to both the fcommodities are homogenous of the first degree. That implies constant returns to scale in production.
• The factor and commodity prices are constant.
• The supply of the factor labour expands while that of capital remains the same.

Conclution:-Thus the conclusion that the increased supply of one factor, keeping the other unchange,will raise in absolute amount the prodution of good intensive in the increasing factor, while the production of the other good wil get reduced in absolute amount.