International Trade And Investment Under Different Rates Of Time Preference
AbstractThis paper attempts to integrate the theory of trade with that of capital movements, and to study the two country world where each nation has a different rate of time preference. It resolves the indeterminacy problem intrinsic in the Heckscher-Ohlin model where trade and factor movements coexist by assuming that capital movements are infinitesimally more costly than trade in goods. Under certain assumptions, one can dichotomize the behavior of asset accumulation from the dynamic pattern of trade specialization. Complete specialization will take place most; likely in the country with a higher rate of time preference, which specializes into the more labor intensive sector. It is shown that a single-commodity model does exaggerate the amount of capital movements, but that the qualitative nature of asset accumulation patterns obtained in a single-commodity model of capital movements holds intact in the model that incorporates trade. This paper offers another explanation to the Feldstein-Horioka paradox that domestic investment responds more closely to increasing savings than capital outflows do. If an economy is imperfectly specialized, increased savings will be absorbed in capital deepening rather than in capital outflow.
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Bibliographic InfoPaper provided by Yale - Economic Growth Center in its series Papers with number 605.
Length: 40 pages
Date of creation: 1990
Date of revision:
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Web page: http://www.econ.yale.edu/~egcenter/
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international trade ; capital movements ; economic models;
Other versions of this item:
- Fukao Kyoji & Hamada Koichi, 1994. "International Trade and Investment under Different Rates of Time Preference," Journal of the Japanese and International Economies, Elsevier, vol. 8(1), pages 22-52, March.
- Kyoji Fukao & Koichi Hamada, 1990. "International Trade and Investment under Different Rates of Time Preference," NBER Working Papers 3457, National Bureau of Economic Research, Inc.
- Fukao, Kyoji & Hamada, Koichi, 1990. "International Trade and Investment under Different Rates of Time Preference," Discussion Paper Series a229, Institute of Economic Research, Hitotsubashi University.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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