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Optimal Growth and Competitive Equilibrium Business Cycles under Decreasing Returns in Two‐Country Models

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  • Kazuo Nishimura
  • Alain Venditti
  • Makoto Yano

Abstract

This paper investigates the interlinkage in the business cycles of large‐country economies in a free‐trade equilibrium. We consider a two‐country, two‐good, two‐factor general‐equilibrium model with Cobb–Douglas technologies and linear preferences. We also assume decreasing returns in both sectors. We first identify the determinants of each country's accumulation pattern in autarky equilibrium, and secondly we show how a country's business cycle may spread throughout the world once trade opens. We prove indeed that under free trade, globalization and market integration may generate a contagion of the capital‐exporting country's business cycles and thus have destabilizing effects on the capital‐importing country.

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  • Kazuo Nishimura & Alain Venditti & Makoto Yano, 2009. "Optimal Growth and Competitive Equilibrium Business Cycles under Decreasing Returns in Two‐Country Models," Review of International Economics, Wiley Blackwell, vol. 17(2), pages 371-391, May.
    • Handle: RePEc:bla:reviec:v:17:y:2009:i:2:p:371-391
    DOI: 10.1111/j.1467-9396.2009.00830.x
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    Cited by:

    1. Kunihiko Konishi, 2015. "Growth Cycles in a Two-country Model of Innovation," Discussion Papers in Economics and Business 15-07, Osaka University, Graduate School of Economics.
    2. Kazuo Nishimura & Alain Venditti & Makoto Yano, 2014. "Destabilization effect of international trade in a perfect foresight dynamic general equilibrium model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 357-392, February.
    3. Atsumasa Kondo & Koji Kitaura, 2012. "International linkage of inflation rates in a dynamic general equilibrium," Journal of Economics, Springer, vol. 107(2), pages 141-155, October.

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