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Destabilization Effect of International Trade in a Perfect Foresight Dynamic General Equilibrium Model

  • Kazuo Nishimura


    (Institute of Economic Research, Kyoto University)

  • Alain Venditti


    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & EDHEC)

  • Makoto Yano


    (Institute of Economic Research, Kyoto University)

In the present paper, we consider a two-country, two-good, two-factor general equilibrium model with CIES non-linear preferences, asymmetric technologies across countries and decreasing returns to scale. It is shown that aggregate instability and endogenous fluctuations may occur due to international trade. In particular, we prove that the integration into a common market on which countries trade the produced good and the capital input may lead to period-two cycles even when the closed-economy equilibrium is saddle-point stable in both countries.

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Paper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1313.

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Length: 40 pages
Date of creation: Mar 2013
Date of revision: Feb 2013
Handle: RePEc:aim:wpaimx:1313
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  1. Nishimura, Kazuo & Yano, Makoto, 1995. "Nonlinear Dynamics and Chaos in Optimal Growth: An Example," Econometrica, Econometric Society, vol. 63(4), pages 981-1001, July.
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  3. Julian di Giovanni & Andrei A. Levchenko, 2012. "Country Size, International Trade, and Aggregate Fluctuations in Granular Economies," Journal of Political Economy, University of Chicago Press, vol. 120(6), pages 1083 - 1132.
  4. Takahashi, Harutaka & Mashiyama, Koichi & Sakagami, Tomoya, 2012. "Does The Capital Intensity Matter? Evidence From The Postwar Japanese Economy And Other Oecd Countries," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S1), pages 103-116, April.
  5. Galor, Oded & Mountford, Andrew, 2006. "Trade and the Great Divergence: The Family Connection," CEPR Discussion Papers 5490, C.E.P.R. Discussion Papers.
  6. Baierla, Gary & Nishimura, Kazuo & Yano, Makoto, 1998. "The role of capital depreciation in multi-sectoral models," Journal of Economic Behavior & Organization, Elsevier, vol. 33(3-4), pages 467-479, January.
  7. Benhabib, Jess & Nishimura, Kazuo, 1979. "The hopf bifurcation and the existence and stability of closed orbits in multisector models of optimal economic growth," Journal of Economic Theory, Elsevier, vol. 21(3), pages 421-444, December.
  8. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers 546, Board of Governors of the Federal Reserve System (U.S.).
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  10. Julian di Giovanni & Andrei A. Levchenko, 2009. "International Trade and Aggregate Fluctuations in Granular Economies," Working Papers 585, Research Seminar in International Economics, University of Michigan.
  11. Boldrin, Michele & Montrucchio, Luigi, 1986. "On the indeterminacy of capital accumulation paths," Journal of Economic Theory, Elsevier, vol. 40(1), pages 26-39, October.
  12. Obstfeld, Maurice, 1994. "Risk-Taking, Global Diversification, and Growth," American Economic Review, American Economic Association, vol. 84(5), pages 1310-29, December.
  13. Makoto Yano, 2012. "The von Neumann–McKenzie facet and the Jones Duality theorem in two-sector optimal growth," International Journal of Economic Theory, The International Society for Economic Theory, vol. 8(2), pages 213-226, 06.
  14. Baxter, Marianne, 1996. "Are Consumer Durables Important for Business Cycles?," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 147-55, February.
  15. Kazuo Nishimura & Alain Venditti & Makoto Yano, 2006. "Endogenous Fluctuations In Two-Country Models," The Japanese Economic Review, Japanese Economic Association, vol. 57(4), pages 516-532.
  16. Oded Galor & Andrew Mountford, 2008. "Trading Population for Productivity: Theory and Evidence," Working Papers 2008-2, Brown University, Department of Economics.
  17. Claustre Bajona & Timothy J. Kehoe, 2006. "Demographics in Dynamic Heckscher-Ohlin Models: Overlapping Generations Versus Infinitely Lived Consumers," NBER Working Papers 12566, National Bureau of Economic Research, Inc.
  18. Kenji Sato & Makoto Yano, 2013. "Optimal ergodic chaos under slow capital depreciation," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(1), pages 57-67, 03.
  19. Julian di Giovanni & Andrei A. Levchenko, 2006. "Trade Openness and Volatility," Development Working Papers 219, Centro Studi Luca d\'Agliano, University of Milano.
  20. Marco Terrones & Eswar Prasad & M. Ayhan Kose, 2003. "Financial Integration and Macroeconomic Volatility," IMF Working Papers 03/50, International Monetary Fund.
  21. Burnside, Craig, 1996. "Production function regressions, returns to scale, and externalities," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 177-201, April.
  22. Ghiglino, Christian & Venditti, Alain, 2007. "Wealth inequality, preference heterogeneity and macroeconomic volatility in two-sector economies," Journal of Economic Theory, Elsevier, vol. 135(1), pages 414-441, July.
  23. Makoto Yano, 1990. "Von neumann facets and the dynamic stability of perfect foresight equilibrium paths in neo-classical trade models," Journal of Economics, Springer, vol. 51(1), pages 27-69, February.
  24. Benhabib, Jess & Nishimura, Kazuo, 1983. "Competitive Equilibrium Cycles," Working Papers 83-30, C.V. Starr Center for Applied Economics, New York University.
  25. Bewley, Truman, 1982. "An integration of equilibrium theory and turnpike theory," Journal of Mathematical Economics, Elsevier, vol. 10(2-3), pages 233-267, September.
  26. Alain Venditti & Kazuo Nishimura & Makoto Yano, 2008. "Optimal growth and competitive equilibrium business cycles under decreasing returns in two-country models," Working Papers halshs-00280528, HAL.
  27. Ethier,Wilfred J. & Helpman,Elhanan & Neary,J. Peter (ed.), 1993. "Theory, Policy and Dynamics in International Trade," Cambridge Books, Cambridge University Press, number 9780521434423.
  28. Venditti, Alain, 1996. "Hopf bifurcation and quasi-periodic dynamics in discrete multisector optimal growth models," Ricerche Economiche, Elsevier, vol. 50(3), pages 267-291, September.
  29. Yano, Makoto, 1984. "The primal route to the turnpike and asymptotic stability," Journal of Mathematical Economics, Elsevier, vol. 13(3), pages 225-234, December.
  30. Yano, Makoto, 1985. "Competitive Equilibria on Turnpikes in a McKenzie Economy, II: An Asymptotic Turnpike Theorem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 661-69, October.
  31. Yano, Makoto, 1984. "Competitive Equilibria on Turnpikes in a McKenzie Economy, I: A Neighborhood Turnpike Theorem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(3), pages 695-717, October.
  32. Makoto Yano, 1998. "On the Dual Stability of a von Neumann Facet and the Inefficacy of Temporary Fiscal Policy," Econometrica, Econometric Society, vol. 66(2), pages 427-452, March.
  33. Nishimura, Kazuo & Yano, Makoto, 1993. "Interlinkage in the Endogenous Real Business Cycles of International Economies," Economic Theory, Springer, vol. 3(1), pages 151-68, January.
  34. Yano, Makoto, 1984. "The turnpike of dynamic general equilibrium paths and its insensitivity to initial conditions," Journal of Mathematical Economics, Elsevier, vol. 13(3), pages 235-254, December.
  35. Tapan Mitra & Gerhard Sorger, 1999. "Rationalizing Policy Functions by Dynamic Optimization," Econometrica, Econometric Society, vol. 67(2), pages 375-392, March.
  36. Cole, Harold L. & Obstfeld, Maurice, 1991. "Commodity trade and international risk sharing : How much do financial markets matter?," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 3-24, August.
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