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A Two Country Model of Trade with International Borrowing and Lending

Author

Listed:
  • Kazumichi Iwasa

    (Research Institute for Economics and Business Administration, Kobe University, JAPAN)

  • Kazuo Nishimura

    (Research Institute for Economics and Business Administration and Center for Computational Social Science, Kobe University, JAPAN)

Abstract

We investigate the properties of a two-country dynamic Heckscher-Ohlin model that allows international borrowing and lending. As is well known, international trade patterns become undecidable when international borrowing and lending is allowed. To avoid this, we assume a consumable capital good to be nontradable. A key feature of our model is the existence of a continuum of steady state levels of capital stocks, which enables us to examine how the initial amount of physical capital and assets in each country affects the amount of capital and assets in the steady state.

Suggested Citation

  • Kazumichi Iwasa & Kazuo Nishimura, 2023. "A Two Country Model of Trade with International Borrowing and Lending," Discussion Paper Series DP2023-08, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2023-08
    as

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2023-08.pdf
    File Function: First version, 2023
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    References listed on IDEAS

    as
    1. Kazuo Nishimura & Koji Shimomura, 2012. "Trade and Indeterminacy in a Dynamic General Equilibrium Model," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 347-361, Springer.
    2. Yoshiyasu Ono & Akihisa Shibata, 2010. "Time Patience and Specialization Patterns in the Presence of Asset Trade," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(1), pages 93-112, February.
    3. Eric W. Bond & Kazumichi Iwasa & Kazuo Nishimura, 2012. "The dynamic Heckscher–Ohlin model: A diagrammatic analysis," International Journal of Economic Theory, The International Society for Economic Theory, vol. 8(2), pages 197-211, June.
    4. Meng, Qinglai & Velasco, Andres, 2004. "Market imperfections and the instability of open economies," Journal of International Economics, Elsevier, vol. 64(2), pages 503-519, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Two-country model; International borrowing and lending; Continuum of steady states;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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