IDEAS home Printed from https://ideas.repec.org/p/zbw/kondp2/146.html
   My bibliography  Save this paper

Trade, investment and debt in a two-country growth model

Author

Listed:
  • Koch, Karl-Josef

Abstract

We study a dynamic version of a Heckscher-Ohlin model with two countries, two factors and two sectors of production. It is based on the neoclassical growth model by Oniki and Uzawa (1965). We remove their balance of payments restriction by introducing an international market for equity shares of the type used by Hori and Stein (1977). We solve the indeterminacy problem of the capital market in case of factor price equalization by making explicit assumptions on the investment behavior. Two extreme cases are considered which correspond to different attitudes towards domestic versus foreign investment. The model has a unique and globally stable steady state with factor price equalization. Along the adjustment path international debt serves the purpose of increasing efficiency. In the long run holding foreign equity shares can bridge the gap between two possibly conflicting goals: efficiency requires similar factor endowments whereas different consumer preferences establish the need of an uneven income distribution. If consumers are different enough, there will be unbalanced trade and international debt in the long run.

Suggested Citation

  • Koch, Karl-Josef, 1991. "Trade, investment and debt in a two-country growth model," Discussion Papers, Series II 146, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    • Handle: RePEc:zbw:kondp2:146
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/101703/1/737082771.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. H. Oniki & H. Uzawa, 1965. "Patterns of Trade and Investment in a Dynamic Model of International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(1), pages 15-37.
    2. Albert, Max, 1989. "Capital mobility and costs of adjustment," Discussion Papers, Series II 96, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    3. Stanley Fischer & Jacob A. Frenkel, 1974. "Interest Rate Equalization and Patterns of Production, Trade and Consumption in a Two‐country Growth Model," The Economic Record, The Economic Society of Australia, vol. 50(4), pages 555-580, December.
    4. Murray C. Kemp, 1968. "International Trade and Investment in a Context of Growth," The Economic Record, The Economic Society of Australia, vol. 44(2), pages 211-223, June.
    5. Hori, Hajime & Stein, Jerome L, 1977. "International Growth with Free Trade in Equities and Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(1), pages 83-100, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fukao Kyoji & Hamada Koichi, 1994. "International Trade and Investment under Different Rates of Time Preference," Journal of the Japanese and International Economies, Elsevier, vol. 8(1), pages 22-52, March.
    2. Mubkat C. Krmp, 1970. "International Trade between Countries with Different Natural Rates of Growth," The Economic Record, The Economic Society of Australia, vol. 46(4), pages 467-481, December.
    3. Vosgerau, Hans-Jürgen, 1987. "International capital movements and trade in an intertemporal setting," Discussion Papers, Series II 25, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    4. Jai-Young Choi & Eden S. H. Yu, 2013. "Market imperfection and international trade in a dynamic economy," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(4), pages 319-336, December.
    5. Koch, Karl-Josef, 1995. "International capital movements and human capital growth," Discussion Papers, Series II 269, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    6. Meckl, Jürgen, 1990. "Dynamic adjustment in open economies," Discussion Papers, Series II 121, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    7. Meckl, Jürgen, 1989. "Investment and sector-specific capital: A dynamic approach to incomplete factor mobility," Discussion Papers, Series II 95, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    8. van Marrewijk, Charles & Verbeek, Jos, 1993. "Disequilibrium Growth Theory in an International Perspective," Oxford Economic Papers, Oxford University Press, vol. 45(2), pages 311-331, April.
    9. Maria Dolores Guillo & Fidel Perez-Sebastian, 2015. "Convergence in a Dynamic Heckscher–Ohlin Model with Land," Review of Development Economics, Wiley Blackwell, vol. 19(3), pages 725-734, August.
    10. Karine Constant & Marion Davin, 2019. "Unequal Vulnerability to Climate Change and the Transmission of Adverse Effects Through International Trade," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(2), pages 727-759, October.
    11. Fedotenkov, Igor & Van Groezen, Bas & Meijdam, Lex, 2019. "International trade with pensions and demographic shocks," Journal of Pension Economics and Finance, Cambridge University Press, vol. 18(1), pages 140-164, January.
    12. Alexander B. Darku, 2021. "International trade and income convergence: Sorting out the nature of bilateral trade," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5337-5348, October.
    13. Wei-Bin Zhang, 2018. "A Growth Theory Based on Walrasian General Equilibrium, Solow-Uzawa Growth, and Heckscher-Ohlin Trade Theories," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 16(3-B), pages 452-464.
    14. Haselmann, Rainer & Holle, Stephanie & Kool, Clemens & Ziesemer, Thomas, 2002. "Sovereign Risk and Simple Debt Dynamics: The Case of Brazil and Argentina," Research Memorandum 034, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    15. Albert, Max, 1995. "Expectations and adjustment dynamics in the specific-factors model: Correction and extension," Discussion Papers, Series II 246, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    16. Rizwana Siddiqui & A. R. Kemal, 2006. "Poverty-reducing or Poverty-inducing? A CGE-based Analysis of Foreign Capital Inflows in Pakistan," PIDE-Working Papers 2006:2, Pakistan Institute of Development Economics.
    17. Alan V. Deardorff, 2011. "Rich And Poor Countries In Neoclassical Trade And Growth," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 25, pages 295-313, World Scientific Publishing Co. Pte. Ltd..
    18. Chun‐Yan Kuo, 1977. "Intermediate Products and the Two‐Sector Growth Model in an Open Economy," The Economic Record, The Economic Society of Australia, vol. 53(1), pages 96-109, March.
    19. Wei-Bin Zhang, 2017. "Spatial Agglomeration And Economic Development With The Inclusion Of Interregional Tourism," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 62(213), pages 93-128, April - J.
    20. Buiter, Willem H, 1981. "Time Preference and International Lending and Borrowing in an Overlapping-Generations Model," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 769-797, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:kondp2:146. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/fwkonde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.