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Public infrastructure for production and international trade in a small open economy: a dynamic analysis

Author

Listed:
  • Akihiko Yanase

    () (Nagoya University)

  • Makoto Tawada

    () (Aichi Gakuin University)

Abstract

This paper develops a dynamic trade model with a stock of public infrastructure, which has a property of “unpaid factor of production”. We show that a country with a smaller (larger) labor endowment tends to become an exporter of a good whose productivity is more (less) sensitive to the stock of public infrastructure. We also show that after the opening of trade, the labor-scarce country becomes unambiguously better off but the labor-abundant country may become worse off. Overall, these results contrasts with those obtained in the case of public intermediate goods with a “creation of atmosphere” property.

Suggested Citation

  • Akihiko Yanase & Makoto Tawada, 2017. "Public infrastructure for production and international trade in a small open economy: a dynamic analysis," Journal of Economics, Springer, vol. 121(1), pages 51-73, May.
  • Handle: RePEc:kap:jeczfn:v:121:y:2017:i:1:d:10.1007_s00712-016-0519-z
    DOI: 10.1007/s00712-016-0519-z
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    References listed on IDEAS

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    1. Manning, R, 1981. "Specialization and Dynamics in a Trade Model," The Economic Record, The Economic Society of Australia, vol. 57(158), pages 251-260, September.
    2. Kenzo Abe, 1990. "A Public Input as a Determinant of Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 23(2), pages 400-407, May.
    3. Spiros Bougheas & Panicos O. Demetriades & Edgar L.W. Morgenroth, 2003. "International aspects of public infrastructure investment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 36(4), pages 884-910, November.
    4. Akihiko Yanase & Makoto Tawada, 2012. "History‐Dependent Paths And Trade Gains In A Small Open Economy With A Public Intermediate Good," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 303-314, February.
    5. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    6. Otto, Glenn & Voss, Graham M, 1994. "Public Capital and Private Sector Productivity," The Economic Record, The Economic Society of Australia, vol. 70(209), pages 121-132, June.
    7. Nobuhito Suga & Makoto Tawada, 2007. "International Trade with a Public Intermediate Good and the Gains from Trade," Review of International Economics, Wiley Blackwell, vol. 15(2), pages 284-293, May.
    8. Charles Figuières & Fabien Prieur & Mabel Tidball, 2013. "Public infrastructure, noncooperative investments, and endogenous growth," Canadian Journal of Economics, Canadian Economics Association, vol. 46(2), pages 587-610, May.
    9. Bougheas, Spiros & Demetriades, Panicos O. & Morgenroth, Edgar L. W., 1999. "Infrastructure, transport costs and trade," Journal of International Economics, Elsevier, vol. 47(1), pages 169-189, February.
    10. McMillan, John, 1978. "A Dynamic Analysis of Public Intermediate Goods Supply in Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 665-678, October.
    11. Tawada, Makoto & Okamoto, Hisayuki, 1983. "International trade with a public intermediate good," Journal of International Economics, Elsevier, vol. 15(1-2), pages 101-115, August.
    12. Pantelis Kalaitzidakis & Vangelis Tzouvelekas, 2011. "On the growth and welfare maximizing allocation of public investment," Journal of Economics, Springer, vol. 104(2), pages 127-137, October.
    13. Makoto Tawada & Kenzo Abe, 1984. "Production Possibilities and International Trade with a Public Intermediate Good," Canadian Journal of Economics, Canadian Economics Association, vol. 17(2), pages 232-248, May.
    14. R. Manning & J. McMillan, 1979. "Public Intermediate Goods, Production Possibilities, and International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 12(2), pages 243-257, May.
    15. Tawada, Makoto, 1980. "The Production Possibility Set with Public Intermediate Goods," Econometrica, Econometric Society, vol. 48(4), pages 1005-1012, May.
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    More about this item

    Keywords

    Semi-public intermediate good; Dynamic Lindahl pricing; Trade patterns; Long-run production possibility frontier; Gains or losses from trade;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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