International Trade And Investment Under Different Rates Of Time Preference
This paper attempts to integrate the theory of trade with that of capital movements, and to study the two country world where each nation has a different rate of time preference. It resolves the indeterminacy problem intrinsic in the Heckscher-Ohlin model where trade and factor movements coexist by assuming that capital movements are infinitesimally more costly than trade in goods. Under certain assumptions, one can dichotomize the behavior of asset accumulation from the dynamic pattern of trade specialization. Complete specialization will take place most; likely in the country with a higher rate of time preference, which specializes into the more labor intensive sector. It is shown that a single-commodity model does exaggerate the amount of capital movements, but that the qualitative nature of asset accumulation patterns obtained in a single-commodity model of capital movements holds intact in the model that incorporates trade. This paper offers another explanation to the Feldstein-Horioka paradox that domestic investment responds more closely to increasing savings than capital outflows do. If an economy is imperfectly specialized, increased savings will be absorbed in capital deepening rather than in capital outflow.
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- Buiter, Willem H, 1981.
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Royal Economic Society, vol. 90(358), pages 314-29, June.
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- repec:tpr:qjecon:v:95:y:1980:i:2:p:375-82 is not listed on IDEAS
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"Current Account And Budget Deficits In An Intertemporal Model Of Consumption And Taxation Smoothing. A Solution To The "Feldstein-Horioka" Puzzel,"
569, Yale - Economic Growth Center.
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"Saving and Investment in an Open Economy with Non-traded Goods,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 735-52, November.
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- Fischer, Stanley & Frenkel, Jacob A, 1974. "Interest Rate Equalization and Patterns of Production, Trade and Consumption in a Two-country Growth Model," The Economic Record, The Economic Society of Australia, vol. 50(132), pages 555-80, December.
- Kyoji Fukao & Koichi Hamada, 1989. "The Fisherian Time Preference and the Ebolution of Capital Ownership Patterns in a Global Economy," NBER Working Papers 3104, National Bureau of Economic Research, Inc.
- Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
- Michael Dooley & Jeffrey Frankel & Donald J. Mathieson, 1987. "International Capital Mobility: What Do Saving-Investment Correlations Tell Us?," IMF Staff Papers, Palgrave Macmillan, vol. 34(3), pages 503-530, September.
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