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Sources of gains in allocative efficiency (Inglês)

This paper formulates a framework for analyzing the gains in allocative efficiency through the convergence of factor returns. Sources of convergence may include: a) factor reallocations, b) differential rates of productivity growth; c) changes in production technologies; d) changes in inter-sectoral prices, both product prices and factor input prices. Significant differences among factor returns may arise due to: 1) shocks that create temporary disequilibria, such as oil price shocks and regulatory changes, and b) uncompetitive markets, including, in the extreme, the allocation of factors through central planning rather than through the market. The paper applies its framework to an analysis of the convergence of factor returns following: 1) the oil shocks of the 1970s and 2) the introduction of China's industrial reforms.




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