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The Dependent-Economy Model with Both Traded and Nontraded Capital Goods

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  • Brock, Philip L
  • Turnovsky, Stephen J

Abstract

Dynamic versions of the dependent-economy model have been criticized for arbitrarily assuming that capital is either tradable or nontradable, and for choosing either the traded or nontraded sector to be capital intensive. Our model incorporates both types of capital and shows that the relative sectoral intensity of nontraded capital determines the dynamic adjustment of the relative price of nontradables. When the traded sector is intensive in nontraded capital, the saddlepath is flat. When the nontraded sector is intensive in nontraded capital, the saddlepath is negatively sloped. The relative sectoral intensity of traded capital primarily affects current-account dynamics. Copyright 1994 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 2 (1994)
Issue (Month): 3 (October)
Pages: 306-25

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Handle: RePEc:bla:reviec:v:2:y:1994:i:3:p:306-25

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  1. Engel, Charles & Kletzer, Kenneth, 1989. "Saving and Investment in an Open Economy with Non-traded Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 735-52, November.
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  7. Bevan, D.L. & Collier, P. & Gunning, J.W., 1990. "Temporary Trade Shocks And Dynamic Adjustment," Economics Series Working Papers 9993, University of Oxford, Department of Economics.
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  13. Turnovsky Stephen J. & Sen Partha, 1995. "Investment in a Two-Sector Dependent Economy," Journal of the Japanese and International Economies, Elsevier, vol. 9(1), pages 29-55, March.
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