Capital and labour markets - EPPA
Capital markets are region-specific. The demand for capital comes from each sector's production activity, while the supply of capital comes from investment and the remaining capital from the previous period. In each region, there is a capital market for the malleable capital, which moves freely across sectors to equalize the rate of return of capital. For the vintage (nonmalleable) capital it is locked into a sector (i.e., sector-specific) and will not be able to be traded in a capital market to search for a higher rate of return in other sectors. In EPPA, labor markets are also region-specific. Labor supply comes from the labor endowment, and labor demand is from each sector's production activity. In the standard EPPA setting, labor is homogenous and can move across sectors freely to equalize the wage rate.
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|Institution||Massachusetts Institute of Technology (MIT), USA, https://globalchange.mit.edu/.|
|Solution concept||General equilibrium (closed economy)|