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The Fundamental Determinants of the Terms of Trade Reconsidered: Long-run and Long-period Equilibrium

  • Darity, William A, Jr

Ronald Findlay's analysis of the long-run equilibrium (uniform international growth rates) determinants of the terms of trade, in the context of North-South models of trade and growth, is reconsidered when the North is a Keynesian and a Kaleckian economy. Also examined are the determinants of the terms of trade in long-period equilibrium (uniform profit rates), so that the consequences of capital mobility are accounted for. Two surprising results are noted: first, the long-run terms of trade when the North is a Kaleckian economy will be independent of the North's markup and, second, in the long-period it is theoretically possible for the North to raise its markup, but experience a deterioration in its own terms of trade. Copyright 1990 by American Economic Association.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 80 (1990)
Issue (Month): 4 (September)
Pages: 816-27

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Handle: RePEc:aea:aecrev:v:80:y:1990:i:4:p:816-27
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