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Growth and Interdependence under Complete Specialization

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  • Alejandro Cuñat
  • Marco Maffezzoli

Abstract

We construct and numerically solve a dynamic Heckscher-Ohlin model in which the initial distribution of production factors in the world makes world-wide factor price equalization impossible, and leads countries to group in two diversification cones. We study the dynamics of income components and factor prices. Our results suggest that the Ramsey model under complete specialization (CS) overcomes several shortcomings of its autarchy and factor-price-equalization (FPE) counterparts. In comparison with the autarchy model, it can account for important cross-sectional differences in income per capita growth rates without generating too large rental-rate differentials across countries. Furthermore, the CS model generates cross-country convergence in growth rates and levels along the transition towards the steady-state. Finally, the CS model converges to FPE in the long run. Unlike the autarchy model, FPE does not necessarily yield convergence in levels; however, international trade is beneficial to both countries in terms of welfare.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 183.

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Handle: RePEc:igi:igierp:183

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Cited by:
  1. Taketo Kawagishi & Kazuo Mino, 2013. "Time Preference and Income Convergence in a Dynamic Heckscher-Ohlin Model," KIER Working Papers 880, Kyoto University, Institute of Economic Research.
  2. Rana Ejaz Ali Khan & Nadia Bashir, 2011. "Trade Liberalization, Poverty and Inequality Nexus: A Case Study of India," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 1(3), pages 114-119, September.
  3. Alejandro Cunat & Marco Maffezzoli, 2003. "The Generalized Neoclassical Growth Model," Working Papers 231, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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