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Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model

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  • Claustre Bajona

    (York University)

  • Timothy Kehoe

    (University of Minnesota)

Abstract

In models in which convergence in income levels across closed countries is driven by faster accumulation of a productive factor in the poorer countries, opening these countries to trade can stop convergence and even cause divergence. We make this point using a dynamic Heckscher-Ohlin model - a combination of a static two-good, two-factor Heckscher-Ohlin trade model and a two-sector growth model - with infinitely lived consumers where international borrowing and lending are not permitted. We obtain two main results: First, countries that differ only in their initial endowments of capital per worker may converge or diverge in income levels over time, depending on the elasticity of substitution between traded goods. Divergence can occur for parameter values that would imply convergence in a world of closed economies and vice versa. Second, factor price equalization in a given period does not imply factor price equalization in future periods. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 13 (2010)
Issue (Month): 3 (July)
Pages: 487-513

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Handle: RePEc:red:issued:09-241

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Keywords: International trade; Heckscher-Ohlin; Economic growth; Convergence;

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References

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Citations

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Cited by:
  1. William W. Olney, 2013. "The Composition of Exports and Human Capital Acquisition," Department of Economics Working Papers, Department of Economics, Williams College 2013-18, Department of Economics, Williams College, revised Sep 2013.
  2. Taketo Kawagishi & Kazuo Mino, 2013. "Time Preference and Income Convergence in a Dynamic Heckscher-Ohlin Model," KIER Working Papers, Kyoto University, Institute of Economic Research 880, Kyoto University, Institute of Economic Research.
  3. Partha Chatterjee & Malik Shukayev, 2008. "A Stochastic Dynamic Model of Trade and Growth: Convergence and Diversification," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c013_034, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. Emami Namini, Julian, 2014. "The short and long-run impact of globalization if firms differ in factor input ratios," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 38(C), pages 37-64.
  5. Timothy J. Kehoe & Mark J. Gibson & Kim J. Ruhl & Claustre Bajona, 2008. "Trade liberalization growth and productivity," 2008 Meeting Papers 789, Society for Economic Dynamics.
  6. Claustre Bajona, 2010. "Demographics in Dynamic Heckscher-Ohlin Models: Overlapping Generations versus Infinitely Lived Consumers," 2010 Meeting Papers, Society for Economic Dynamics 1172, Society for Economic Dynamics.
  7. Emily T. Cremers, 2008. "Transfers, the Terms of Trade and Capital Accumulation," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c013_018, DEGIT, Dynamics, Economic Growth, and International Trade.
  8. Hu, Yunfang & Mino, Kazuo, 2013. "Trade structure and belief-driven fluctuations in a global economy," Journal of International Economics, Elsevier, Elsevier, vol. 90(2), pages 414-424.
  9. Yunfang Hu & Kazuo Mino, 2011. "Globalization and Volatility under Alternative Trade Structures," KIER Working Papers, Kyoto University, Institute of Economic Research 791, Kyoto University, Institute of Economic Research.
  10. Dilip Mookherjee & Debraj Ray, 2010. "Inequality and Markets: Some Implications of Occupational Diversity," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 2(4), pages 38-76, November.
  11. Clinton R. Shiells & Joseph F. Francois, 2008. "Dynamic Factor Price Equalization and International Income Convergence," IMF Working Papers, International Monetary Fund 08/267, International Monetary Fund.
  12. Guilló, María Dolores & Pérez-Sebastián, Fidel, 2012. "Neoclassical Growth and the Natural Resource Curse Puzzle," QM&ET Working Papers, Universidad de Alicante, Departamento de Métodos Cuantitativos y Teoría Económica 12-14, Universidad de Alicante, Departamento de Métodos Cuantitativos y Teoría Económica.
  13. Lorenzo Caliendo, 2010. "On the Dynamics of the Hecksher-Ohlin Theory," Working Papers, Becker Friedman Institute for Research In Economics 2010-011, Becker Friedman Institute for Research In Economics.
  14. Joseph Francois & Clinton R. Shiells, 2008. "Dynamic Factor Price Equalization & International Convergence," Economics working papers, Department of Economics, Johannes Kepler University Linz, Austria 2008-20, Department of Economics, Johannes Kepler University Linz, Austria.
  15. Grier, Kevin & Grier, Robin, 2007. "Only income diverges: A neoclassical anomaly," Journal of Development Economics, Elsevier, Elsevier, vol. 84(1), pages 25-45, September.
  16. Rodrigo Fuentes & Verónica Mies, 2007. "Development Paths and Dynamic Comparative Advantages: When Leamer Met Solow," Working Papers Central Bank of Chile, Central Bank of Chile 453, Central Bank of Chile.
  17. Partha Sen, 2010. "Monetary Policy, Capital Flows, And The Exchange Rate," Working papers, Centre for Development Economics, Delhi School of Economics 193, Centre for Development Economics, Delhi School of Economics.
  18. repec:dgr:uvatin:2009020 is not listed on IDEAS
  19. Hübler, Michael, 2013. "South-North convergence from a new perspective," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 13-104, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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