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A Three-Sector Spatial Growth Model of a Small Open Economy with Capital Accumulation

Author

Listed:
  • Zhang, Wei-Bin

    () (Ritsumeikan Asia Pacific University)

Abstract

This paper presents a growth model of a small open economy with economic geography. The economy has three - industrial, services and housing - sectors. The economy is located along a line segment and land is for residential use. The model synthesizes the four well-known models in neoclassical growth theory and urban economics - the Solow growth model, Uzawa’s two-sector model, the Alonso urban model, and the Muth housing model - in the context of a small open economy. We analyze the dynamics of a spatial economy and simulate the model over time and space. We show how changes in some parameters, such as the rate of interest and domestic preference, can affect economic structures and land use of the small economy. For instance, the simulation results show that as the rate of interest is increased in the global market, the domestic wage rate, the output levels per worker of the industrial and service sectors, the capital intensities of the three sectors, the capital employed by the three sectors, the national output are reduced, the price of services, the consumption levels of goods, services and housing, the wealth per capita are increased. The labor employment of the industrial sector is reduced and the labor employment of service sector is increased. The housing rent is increased and the land rent is reduced due to the rise in the rate of interest.

Suggested Citation

  • Zhang, Wei-Bin, 2009. "A Three-Sector Spatial Growth Model of a Small Open Economy with Capital Accumulation," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 24, pages 248-274.
  • Handle: RePEc:ris:integr:0473
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    References listed on IDEAS

    as
    1. Amelia Santos-Paulino & A. P. Thirlwall, 2004. "The impact of trade liberalisation on exports, imports and the balance of payments of developing countries," Economic Journal, Royal Economic Society, vol. 114(493), pages 50-72, February.
    2. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
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    More about this item

    Keywords

    small open economy; economic growth; residential distribution; Solow-Uzawa’s growth model;

    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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