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Time Preference and Income Convergence in a Dynamic Heckscher-Ohlin Model

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  • Taketo Kawagishi

    ()
    (Tezukayama University)

  • Kazuo Mino

    ()
    (Kyoto University)

Abstract

This paper shows that income convergence in an open-economy setting hinges upon how the time-discount rate of the households is determined. As opposed to the case of constant time-discount rate where cross-country income divergence may emerge, the small-open economy may catch up with the rest of the world if the discount rate increases with consumption. In contrast, either if the discount rate decreases with consumption or if future-oriented investment of the household lowers the time- discount rate, then the small-open economy fails to catch up with the rest of the world under free trade of commodities.

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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 880.

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Length: 24pages
Date of creation: Nov 2013
Date of revision:
Handle: RePEc:kyo:wpaper:880

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