Decomposing the Changes in Production Prices into "Capital-Intensity" and "Price" Effects: Theory and Evidence from the Chinese Economy |
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Authors: | Mariolis Theodore; Tsoulfidis Lefteris |
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Institution: | 1 Department of Public Administration, Panteion University, Syngrou Ave, Athens, Greece
2 Department of Economics, University of Macedonia, Egnatia Str., Thessaloniki, Greece |
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Abstract: | This paper deals with the changes in prices of production inducedby variations in income distribution on the basis of a linearmodel of production with circulating capital and homogeneouslabour. It is shown that the total effect of income distributionon prices can be decomposed into a "capital-intensity" and a"price" effect and that, in actual economies, the former isexpected to dominate the latter. In order to obtain a concreteidea of the actual trajectories of the price movements and toquantify the relative strength of the two effects, we use input–outputdata of the Chinese economy. |
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