For a small open economy with decreasing returns to scale within industries, increasing any factor supply may increase all sector outputs. A necessary and sufficient condition for these seemingly perverse Rybczynski adjustments may even be satisfied for stable equilibria

The paper develops a unified general equilibrium model includingsavings with overlapping generations, investment and search unemploament. Long-run analytical results for the small open economy identify capital accumulation as a prime transmission channel. The effects of integration on...