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Endogenous wealth and knowledge in Heckscher-Ohlin theory

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  • Zhang, Wei-Bin

Abstract

This study introduces endogenous knowledge in the two-country free-trade model with endogenous capital recently proposed by Zhang (2015). We examine the role of knowledge utilization efficiencies, learning by doing efficiencies, total factor productivities, and preferences in influencing dynamics of capital stocks, knowledge, and pattern of trade on the basis of the generalized Heckscher-Ohlin (H-O) theory of international trade. The paper constructs a free trade model with wealth and knowledge accumulation as growth determinants. Labor and capital distributions between countries and between sectors are determined in perfectly competitive markets. The model is an integration of the Oniki-Uzawa trade model, the H-O model, the Solow-Uzawa neoclassical growth model, Arrow's learning-by-doing model, and Zhang's treatment of knowledge as international public stock. The model is simulated. The existence of equilibrium point is confirmed. The motion of the dynamic system is plotted. We carry out comparative dynamic analysis with regard to the knowledge utilization efficiencies, population expansion, the propensity to consume capital good, the propensity to consume countries' specified goods, and the propensity to hold wealth.

Suggested Citation

  • Zhang, Wei-Bin, 2017. "Endogenous wealth and knowledge in Heckscher-Ohlin theory," International Journal of Development and Conflict, Gokhale Institute of Politics and Economics, vol. 7(2), pages 119-137.
    • Handle: RePEc:gok:ijdcv1:v:7:y:2017:i:2:p:119-137
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