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Fiscal policy, specialization, and trade in the two-sector model: the return of Ricardo?

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Marianne Baxter

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Abstract

This paper develops a two-sector neoclassical model of international trade with endogenous capital accumulation and intertemporal optimization. In contrast to the traditional “2x2x2” model, there is a Ricardian implication that countries specialize according to comparative advantage. Consequently, the theory predicts that government expenditure policies are unlikely to affect the established pattern of specialization and trade, but that changes in tax policies can result in a dramatic reorganization of world production. Further, the dynamic “2x2x2” model can explain many of the salient features of international trade that are problematic for the standard Heckscher-Ohlin-Samuelson model.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Discussion Paper / Institute for Empirical Macroeconomics with number 56.

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Date of creation: 1991
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Handle: RePEc:fip:fedmem:56

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Related research
Keywords: Fiscal policy ; International trade;

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  1. Alejandro Cuñat & Marco Maffezzoli, . "Heckscher-Ohlin Business Cycles," Working Papers 210, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  2. Claustre Bajona & Timothy J. Kehoe, 2008. "Trade, growth, and convergence in a dynamic Heckscher-Ohlin model," Staff Report 378, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  3. Antonio Manresa & Monica Pigem, 2000. "Diffusion of Countries Growth Through Specialization and Trade of Intermediate Inputs," Econometric Society World Congress 2000 Contributed Papers 1119, Econometric Society. [Downloadable!]
  4. Francois, Joseph, 2000. "Preferential Trade Arrangements, Induced Investment, and National Income in a Heckscher-Ohlin-Ramsey Model," CEPR Discussion Papers 2535, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Gorodnichenko, Yuriy & Mendoza, Enrique G. & Tesar, Linda L., 2009. "The Finnish Great Depression: From Russia with Love," IZA Discussion Papers 4113, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Michael A. Kouparitsas, 1996. "North-South financial integration and business cycles," Working Paper Series, Macroeconomic Issues WP-96-10, Federal Reserve Bank of Chicago. [Downloadable!]
  7. Brigitte Desroches & Michael Francis, 2006. "Institutional Quality, Trade, and the Changing Distribution of World Income," Working Papers 06-19, Bank of Canada. [Downloadable!]
  8. Fernando Alvarez & Robert E. Lucas, 2005. "General Equilibrium Analysis of the Eaton-Kortum Model of International Trade," NBER Working Papers 11764, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Luis C. Corchon, 2005. "Trade And Growth: A Simple Model With Not-So-Simple Implications," Economics Working Papers we055424, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  10. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Relative Price Movements in Dynamic General Equilibrium Models of International Trade," NBER Working Papers 4243, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Jun Ishii & Kei-Mu Yi, 1997. "The growth of world trade," Research Paper 9718, Federal Reserve Bank of New York. [Downloadable!]
  12. Marianne Baxter & Michael Kouparitsas, 2004. "Determinants of business cycle comovement: a robust analysis," Working Paper Series WP-04-14, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  13. Andrew Atkeson & Patrick J. Kehoe, 2000. "Paths of development for early- and late-bloomers in a dynamic Heckscher-Ohlin model," Staff Report 256, Federal Reserve Bank of Minneapolis. [Downloadable!]
  14. Jiandong Ju & Shang-Jin Wei, 2007. "Current Account Adjustment: Some New Theory and Evidence," NBER Working Papers 13388, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Michael A. Kouparitsas, 1996. "North-South business cycles," Working Paper Series, Macroeconomic Issues WP-96-9, Federal Reserve Bank of Chicago. [Downloadable!]
  16. Michael A. Kouparitsas, 1997. "Why do countries pursue bilateral trade agreements: a case study of North America," Working Paper Series, Macroeconomic Issues WP-97-20, Federal Reserve Bank of Chicago. [Downloadable!]
  17. Yoshiyasu Ono & Akihisa Shibata, 2006. "Capital Income Taxation and Specialization Patterns: Investment Tax vs. Saving Tax," KIER Working Papers 613, Kyoto University, Institute of Economic Research. [Downloadable!]
    Other versions:
  18. Jonathan Eaton & Samuel Kortum, 1997. "Technology and Bilateral Trade," NBER Working Papers 6253, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  19. Michael A. Kouparitsas, 1998. "Dynamic trade liberalization analysis: steady state, transitional and inter-industry effects," Working Paper Series WP-98-15, Federal Reserve Bank of Chicago. [Downloadable!]
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