RESULTS OF PRODUCT-PRICE STUDIES: A Survey of Nine Product-Price Studies 5

Posted by Connie R. Aponte on May 7, 2014 in RESULTS OF PRODUCT-PRICE STUDIES |

Leamer (1996) uses a Heckscher-Ohlin perspective to analyze the wage implications of product-price shifts during the 1960s (1961 to 1971), 1970s (1971 to 1981), and 1980s (1981 to 1991). The data analysis has a descriptive component where “the empirical facts are presented with only a ‘light’ touch of the HO framework” (p. 15) followed by a “formal data analysis … which is based explicitly on the one-cone HO model” (p. 15).

Leamer’s descriptive analysis tracks domestic product prices for two-digit industries relative to the overall producer-price index (PPI) (Figures 10 and 14). The key sectors are textiles and apparel, two very labor-intensive industries. Leamer reports that the three decades behaved very differently. During the 1960s the prices of textiles and apparel fell relative to the overall PPI by a relatively modest 8% and 4%, respectively. During the 1970s their relative prices plunged by 30%. Finally, during the 1980s their relative prices were quite stable. The key message from these descriptive facts are that the 1970s, not the 1960s or 1980s, appear to be the decade where U.S. relative prices of less-skilled-labor-intensive products fell markedly. payday loan direct lenders

For his more structural analysis Leamer uses the zero-profit conditions written above in equation (1). In differentiating these equations to express them in terms of changes, however, Leamer does not assume away changes in technology and their possible feedback to prices–he explicitly allows these changes in his framework. Thus, along with Baldwin and Cain Leamer is one of the first researchers to consider causes of product-price changes other than some aspect of “international trade.” Differentiating equation (1) for (sufficiently small) changes while allowing technological progress yields the following equation:
Here P* is defined as earlier as an (N x1) vector or product prices; 9 and W* now include both primary factors and intermediate inputs; and TFP* is an (N x 1) vector of total-factor-productivity (tfp) growth in all industries.

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