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Wealth Accumulation and Growth in a Specific-Factors Model of Trade and Finance

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  • Petrucci, Alberto

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Abstract

This paper investigates the allocative properties of an OLG specificfactors small open economy facing perfect capital mobility. Wealth formation, economic development and different labor market regimes are at the center-stage of the analysis. In a model with competitive wages and no unemployment, we find that exogenous shocks that do not affect human wealth —like the terms of trade and land endowment shifts— or the propensity to save, leave nonhuman wealth, consumption and aggregate labor unchanged; in such cases, capital formation is driven by the static effects exerted on sectoral labor. Disturbances that alter human wealth —like the world interest rate, and capital and labor taxation shocks— or the thrift rate, instead, affect nonhuman wealth and consumption as they involve an intergenerational redistribution of resources that modifies aggregate saving; labor hours supplied may be changed. In these circumstances, capital accumulation is the result of the consequences exerted on financial wealth and input demands. The consideration of a labor market with structural unemployment does not qualitatively affect the results, except for the world interest rate and the rate of time discount shifts. Our results differ substantially from those obtained in static and dynamic specific-factors setups with financial autharky.

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Bibliographic Info

Paper provided by University of Molise, Dept. EGSeI in its series Economics & Statistics Discussion Papers with number esdp06029.

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Length: 33 pages
Date of creation: 16 Jun 2006
Date of revision:
Handle: RePEc:mol:ecsdps:esdp06029

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Keywords: Specific-Factors; Capital Accumulation; Land; Net Foreign Assets; Finite Horizons.;

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  1. Eaton, Jonathan, 1987. "A Dynamic Specific-Factors Model of International Trade," Review of Economic Studies, Wiley Blackwell, vol. 54(2), pages 325-38, April.
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  16. Mussa, Michael, 1974. "Tariffs and the Distribution of Income: The Importance of Factor Specificity, Substitutability, and Intensity in the Short and Long Run," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1191-1203, Nov.-Dec..
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