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Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model

  • Claustre Bajona
  • Timothy J. Kehoe

This paper studies the properties of a dynamic Heckscher-Ohlin model - a combination of a static two-good, two-factor Heckscher-Ohlin trade model and a two-sector growth model - with infinitely lived consumers where international borrowing and lending are not permitted. We obtain two main results: First, even if factor prices are equalized, countries that differ only in their initial endowments of capital per worker may converge or diverge in income levels over time, depending on the elasticity of substitution between traded goods. Divergence can occur for parameter values that would imply convergence in a world of closed economies and vice versa. Second, factor price equalization in a given period does not imply factor price equalization in future periods.

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File URL: http://www.nber.org/papers/w12567.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12567.

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Date of creation: Oct 2006
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Publication status: published as Claustre Bajona & Timothy Kehoe, 2010. "Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 487-513, July.
Handle: RePEc:nbr:nberwo:12567
Note: EFG
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  1. Baxter, Marianne, 1992. "Fiscal Policy, Specialization, and Trade in the Two-Sector Model: The Return of Ricardo?," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 713-44, August.
  2. Yoshiyasu Ono & Akihisa Shibata, 2005. "Fiscal Spending, Relative-Price Dynamics, and Welfare in a World Economy," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 216-236, 05.
  3. Deardorff, Alan V & Hanson, James A, 1978. "Accumulation and a Long-Run Heckscher-Ohlin Theorem," Economic Inquiry, Western Economic Association International, vol. 16(2), pages 288-92, April.
  4. Eric W. Bond & Kathleen Trask & Ping Wang, 1996. "Factor Accumulation and Trade: Dynamic Comparative Advantage with Endogenous Physical and Human Capital," Vanderbilt University Department of Economics Working Papers 0031, Vanderbilt University Department of Economics, revised Aug 2000.
  5. Koji Shimomura & Kazuo Nishimura, 2001. "Trade and Indeterminacy in a Dynamic General Equilibrium Model," Discussion Paper Series 117, Research Institute for Economics & Business Administration, Kobe University.
  6. Stiglitz, Joseph E, 1970. "Factor Price Equalization in a Dynamic Economy," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 456-88, May-June.
  7. 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.
  8. Richard A. Brecher & Zhiqi Chen & Ehsan U. Choudhri, 2000. "Absolute and Comparative Advantage, Reconsidered: The Pattern of International Trade with Optimal Saving," Carleton Economic Papers 00-02, Carleton University, Department of Economics, revised Nov 2002.
  9. Francesc Obiols-Homs, 2002. "Trade Effects on the Personal Distribution of Wealth," Working Papers 0208, Centro de Investigacion Economica, ITAM.
  10. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
  11. Smith, Alasdair, 1984. "Capital theory and trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 6, pages 289-324 Elsevier.
  12. Alejandro Cunat & Marco Maffezzoli, 2004. "Neoclassical Growth and Commodity Trade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 707-736, July.
  13. Partha Chatterjee & Malik Shukayev, 2006. "Convergence in a Stochastic Dynamic Heckscher-Ohlin Model," Working Papers 06-23, Bank of Canada.
  14. Kazuo Nishimura & Koji Shimomura, 2006. "Indeterminacy in a dynamic two-country model," Economic Theory, Springer, vol. 29(2), pages 307-324, October.
  15. Andrew Atkeson & Patrick J. Kehoe, 2000. "Paths of development for early- and late-bloomers in a dynamic Heckscher-Ohlin model," Staff Report 256, Federal Reserve Bank of Minneapolis.
  16. Findlay, Ronald, 1970. "Factor Proportions and Comparative Advantage in the Long Run," Journal of Political Economy, University of Chicago Press, vol. 78(1), pages 27-34, Jan.-Feb..
  17. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 775-91, October.
  18. Zhiqi Chen, 1992. "Long-Run Equilibria in a Dynamic Heckscher-Ohlin Model," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 923-43, November.
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