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The Dynamics of a Small Open Economy in a Ricardian Model with a Market for Land under Equilibrium Expectations

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  • Carlo BERETTA

    (Universita' Cattolica di Milano)

Abstract

Each country produces just one good, corn, by means of corn, labour and land. Capitalists allocate their funds between corn production and the purchase of land so as to equalise the rate of profit on these activities under equilibrium expectations. Autarky in natural equilibrium is briefly discussed. Opening the economy allows capitalists to invest either domestically or abroad. In the small country case, equilibrium expectations make the economy very unstable. Under most circumstances, the economy will register an inflow of capital, which can be employed productively only in the short run, if at all, and thereafter will translate in speculation in land, followed by a balance of payments crisis and collapse on this market.

Suggested Citation

  • Carlo BERETTA, 2007. "The Dynamics of a Small Open Economy in a Ricardian Model with a Market for Land under Equilibrium Expectations," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 115(1), pages 29-47.
    • Handle: RePEc:vep:journl:y:2007:v:115:i:1:p:29-47
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    More about this item

    Keywords

    Dynamic of a Small Open Economy; Market for land in a Ricardian model; Factor movements in a model of trade;
    All these keywords.

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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