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Contributions to Political Economy Advance Access originally published online on April 2, 2009
Contributions to Political Economy 2009 28(1):1-22; doi:10.1093/cpe/bzp002
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© The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved

Decomposing the Changes in Production Prices into "Capital-Intensity" and "Price" Effects: Theory and Evidence from the Chinese Economy*

Theodore Mariolis1 and Lefteris Tsoulfidis2

1 Department of Public Administration, Panteion University, Syngrou Ave, Athens, Greece
2 Department of Economics, University of Macedonia, Egnatia Str., Thessaloniki, Greece

This paper deals with the changes in prices of production induced by variations in income distribution on the basis of a linear model of production with circulating capital and homogeneous labour. It is shown that the total effect of income distribution on prices can be decomposed into a "capital-intensity" and a "price" effect and that, in actual economies, the former is expected to dominate the latter. In order to obtain a concrete idea of the actual trajectories of the price movements and to quantify the relative strength of the two effects, we use input–output data of the Chinese economy.

* We are grateful to George Soklis and an anonymous referee of this journal for helpful comments and suggestions. The usual disclaimer applies.


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