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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. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.

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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(SI), pages 371-391, May.
  • Handle: RePEc:bla:reviec:v:17:y:2009:i:si:p:371-391
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    1. Ghatak, Maitreesh & Pandey, Priyanka, 2000. "Contract choice in agriculture with joint moral hazard in effort and risk," Journal of Development Economics, Elsevier, pages 303-326.
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    4. Derek Laing & Theodore Palivos & Ping Wang, 1995. "Learning, Matching and Growth," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 115-129.
    5. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, January.
    6. Chen, Been-Lon & Shimomura, Koji, 1998. "Self-Fulfilling Expectations and Economic Growth: A Model of Technology Adoption and Industrialization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 151-170, February.
    7. Karl Shell, 2010. "Inventive Activity, Industrial Organization and Economic Growth," Levine's Working Paper Archive 1408, David K. Levine.
    8. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 85-120.
    9. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, pages 387-407.
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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 and Osaka School of International Public Policy (OSIPP).
    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), pages 357-392.
    3. Atsumasa Kondo & Koji Kitaura, 2012. "International linkage of inflation rates in a dynamic general equilibrium," Journal of Economics, Springer, pages 141-155.

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