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The Harrod–Balassa–Samuelson effect and endogenous extensive margins

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  • Hamano, Masashige

Abstract

In the last few decades, the world economy has witnessed the expansion of trade, especially in the number of exchanged varieties, the so-called “extensive margins”. In a theoretical model where extensive margins in both tradable and non-tradable sectors are endogenously determined, it is shown that the Harrod–Balassa–Samuelson (HBS) effect is amplified. Following an HBS productivity shock, when countries expand their extensive margins rather than the scale of production, wages appreciate further. Therefore, the expansion in extensive margins leads to a stronger appreciation in the price of non-traded goods. Furthermore, when traded and non-traded goods are complements, the number of firms in the non-traded sector increases despite the appreciation of non-traded goods prices.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 31 (2014)
Issue (Month): C ()
Pages: 98-113

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Handle: RePEc:eee:jjieco:v:31:y:2014:i:c:p:98-113

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Web page: http://www.elsevier.com/locate/inca/622903

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Keywords: Firm entry; Real exchange rate; Extensive margin; Harrod–Balassa–Samuelson;

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Cited by:
  1. Wessel N. Vermeulen, 2013. "Resource Income and the Effect on Domestic Neighbours: A case study on Canadian Provinces," CREA Discussion Paper Series 13-05, Center for Research in Economic Analysis, University of Luxembourg.

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