2. Rybczynski Theorem | |

Assumption | Output prices are held constrant. Accordingly, factor prices are fixed. This deals with growth of a small open economy. input-output coefficients remain constant. |

Rybczynski Theorem | An increase in labor endowment increases the output of the labor-intensive industry and decreases the output of the other industry (L and the L-intensive industry are friends.) |

resource constraints | 1. The relationship between input and output a a The a |

2. The Rybczynski Theorem | The above equations show that the sum of the inputs used in the two industries must add up to the nation's input supplies. _{1},K_{1}) + (L_{2},K_{2)} = (L,K).
This relationship between inputs and outputs are shown below. An increase in the endowment of labor increases the production of labor intensive good and decreases the production of the other good (capital intensive good). The cone of diversification can be used to illustrate Rybczynski Theorem in the output spac e. An increase in the endowment of one factor results in either an ultra-export or import biased growth. Figure. The Rybczynski Theorem |

Rybczynski effects |
Example of ultra export biased growth |