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Dynamic Factor Price Equalization and International Income Convergence


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  • Clinton R. Shiells
  • Joseph F. Francois


The paper develops a tractable way to incorporate the micro structure of dual models of international trade into a standard class of dynamic open-economy macro models. In the process, it develops the concept of a dynamic factor price equalization set and an integrated intertemporal equilibrium. A number of results are obtained concerning trade, growth, and income convergence. Countries with higher capital/labor ratios may stay wealthier over time, both in the transition and in the new steady state. Real shocks in one country will be transmitted to the other country through the factor markets and traded goods prices.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/267.

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Length: 17
Date of creation: 01 Dec 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/267

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Postal: International Monetary Fund, Washington, DC USA
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Keywords: Prices; Economic growth; External shocks; Income; Spillovers; Economic models; capital stock; factor price; intermediate goods; factor price equalization; international trade; capital accumulation; income convergence; factor markets; trade models; open economy; closed economy; factor endowments; international capital flows; pattern of trade; free trade; capital intensity; capital formation; trade theory; closed economies; domestic savings; capital-abundant country; international borrowing; imperfect competition; terms of trade effects; terms of trade; capital income; international capital; trade effects; open economies; transition period; world economy; trade structure; elasticity of substitution;

This paper has been announced in the following NEP Reports:


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  1. Manning, R. & Markusen, J.R., 1988. "National Product Functions In Comparative Steady-State Analysis," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers, University of Western Ontario, The Centre for the Study of International Economic Relations 8808c, University of Western Ontario, The Centre for the Study of International Economic Relations.
  2. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  3. Claustre Bajona & Timothy J. Kehoe, 2008. "Trade, growth, and convergence in a dynamic Heckscher-Ohlin model," Staff Report, Federal Reserve Bank of Minneapolis 378, Federal Reserve Bank of Minneapolis.
  4. Jaume Ventura & Francesco Caselli, 2000. "A Representative Consumer Theory of Distribution," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 909-926, September.
  5. Claustre Bajona & Timothy J. Kehoe, 2006. "Demographics in dynamic Heckscher-Ohlin models: overlapping generations versus infinitely lived consumers," Staff Report, Federal Reserve Bank of Minneapolis 377, Federal Reserve Bank of Minneapolis.
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