Capital Accumulation And Convergence In A Small Open Economy
Outward-oriented economies seem to grow faster than inward-looking ones. Does the literature on convergence have anything to say on this? In the dynamic Heckscher-Ohlin-Samuelson model, with factor-price equalization, there is no convergence of incomes. This is because with identical preferences and return to capital, irrespective of initial levels the growth rates of consumption are the same. In the Specific Factors model, there is factor price equalization in the long run, but incomes depend on endowments of non-accumulable factors. Different specifications for the intersectorally mobile factors have different implications for development (as well as convergence).
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