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The wage fund theory and gains from trade in a dynamic Ricardian model

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  • Sugata Marjit
  • Noritsugu Nakanishi

Abstract

The theory of wage fund as the basic source of financial capital or credit is incorporated into a dynamic Ricardian trade model consisting of three classes of agents: the workers, the capitalist, and the producers of goods. We derive the modified golden rule based on a significantly different mechanism from the standard optimal growth framework. We show that, although international trade in a static setting in the wage fund framework has asymmetric distributional effects on the agents' welfare, those asymmetric impacts are nullified in the dynamic setting. In fact, trade liberalization is Pareto improving along the balanced growth path.

Suggested Citation

  • Sugata Marjit & Noritsugu Nakanishi, 2023. "The wage fund theory and gains from trade in a dynamic Ricardian model," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(4), pages 879-897, December.
    • Handle: RePEc:bla:ijethy:v:19:y:2023:i:4:p:879-897
    DOI: 10.1111/ijet.12383
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