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Do We Have to Consider International Capital Mobility in Trade Models?

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  • Katrin Springer
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    Abstract

    The traditional trade theory predicts that trade in goods perfectly substitutes for direct movement of factors. This equivalence between goods trade and factor movements, however, depends crucially on assumptions about the production. This paper establishes necessary and sufficient conditions which describe the relationship between goods trade and capital mobility in a 2x2x2 trade model with internationally mobile capital. It identifies possible ways of incorporating capital mobility into a multi-regional, multi-sectoral Computable General Equilibrium framework. The consideration of capital mobility leads to other allocational and distributional outcomes of policy scenarios if there exists differences in production technologies across regions, trade impediments, or distortions in product or factor markets.

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    File URL: https://www.ifw-members.ifw-kiel.de/publications/do-we-have-to-consider-international-capital-mobility-in-trade-models/kap964.pdf
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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 964.

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    Length: 50 pages
    Date of creation: Jan 2000
    Date of revision:
    Handle: RePEc:kie:kieliw:964

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    Related research

    Keywords: Capital Mobility; International Trade; Computable General; Equilibrium Model;

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    1. Douglas D. Purvis, 1971. "Technology, Trade and Factor Mobility," Working Papers, Queen's University, Department of Economics 54, Queen's University, Department of Economics.
    2. Saavedra-Rivano, Neantro & Wooton, Ian, 1983. "The choice between international labour and capital mobility in a dynamic model of North-South trade," Journal of International Economics, Elsevier, vol. 14(3-4), pages 251-261, May.
    3. Maurice Obstfeld, 2000. "The Global Capital Market: Benefactor or Menace?," International Finance, EconWPA 0004001, EconWPA.
    4. J. Bhagwati & R. Brecher, 1978. "National Welfare in an Open Economy in the Presence of Foreign Owned Factors of Production," Working papers 224, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Gordon, Roger H & Bovenberg, A Lans, 1996. "Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation," American Economic Review, American Economic Association, vol. 86(5), pages 1057-75, December.
    6. Markusen, James R & Svensson, Lars E O, 1985. "Trade in Goods and Factors with International Differences in Technology," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 175-92, February.
    7. Jones, Ronald W. & Peter Neary, J., 1984. "The positive theory of international trade," Handbook of International Economics, Elsevier, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 1, pages 1-62 Elsevier.
    8. W. J. McKibbin & P. J. Wilcoxen, . "The Theoretical and Empirical Structure of the G-Cubed Model," Discussion Papers, Brookings Institution International Economics 118, Brookings Institution International Economics.
    9. Thompson, Henry, 1994. "An investigation into the quantitative properties of the specific factors model of international trade," Japan and the World Economy, Elsevier, Elsevier, vol. 6(4), pages 375-388, December.
    10. Brecher, Richard A. & Feenstra, Robert C., 1983. "International trade and capital mobility between diversified economies," Journal of International Economics, Elsevier, vol. 14(3-4), pages 321-339, May.
    11. Ethier, Wilfred J. & Svensson, Lars E. O., 1986. "The theoremes of international trade with factor mobility," Journal of International Economics, Elsevier, vol. 20(1-2), pages 21-42, February.
    12. Norman, Victor D & Venables, Anthony J., 1993. "International Trade, Factor Mobility and Trade Costs," CEPR Discussion Papers 766, C.E.P.R. Discussion Papers.
    13. Markusen, James R., 1983. "Factor movements and commodity trade as complements," Journal of International Economics, Elsevier, vol. 14(3-4), pages 341-356, May.
    14. Markusen, James R. & Melvin, James R., 1979. "Tariffs, capital mobility, and foreign ownership," Journal of International Economics, Elsevier, vol. 9(3), pages 395-409, August.
    15. James R. Melvin, 1996. "Trade and Investment with Constant and Increasing Returns to Scale," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 361-65, April.
    16. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
    17. Lars E.O. Svensson, 1982. "Factor Trade and Goods Trade," NBER Working Papers 0999, National Bureau of Economic Research, Inc.
    18. J. Peter Neary, 1995. "Factor Mobility and International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 4-23, November.
    19. Suzuki, Katsuhiko, 1989. "Choice between international capital and labor mobility for diversified economies," Journal of International Economics, Elsevier, vol. 27(3-4), pages 347-361, November.
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    Cited by:
    1. Gernot Klepper & Sonja Peterson & Katrin Springer, 2003. "DART97: A Description of the Multi-regional, Multi-sectoral Trade Model for the Analysis of Climate Policies," Kiel Working Papers 1149, Kiel Institute for the World Economy.

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