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.
|Date of creation:||Oct 1990|
|Publication status:||published as Journal of Japanese and International Economies, Vol. 8, no. 1 (March 1994): 22-52.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ruffin, Roy J, 1979. "Growth and the Long-Run Theory of International Capital Movements," American Economic Review, American Economic Association, vol. 69(5), pages 832-842, December.
- Hirofumi Uzawa, 1964. "Optimal Growth in a Two-Sector Model of Capital Accumulation," Review of Economic Studies, Oxford University Press, vol. 31(1), pages 1-24.
- Feldstein, Martin & Horioka, Charles, 1980.
"Domestic Saving and International Capital Flows,"
Royal Economic Society, vol. 90(358), pages 314-329, June.
- Engel, Charles & Kletzer, Kenneth, 1989.
"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 735-752, November.
- Charles Engel & Kenneth Kletzer, 1987. "Saving and Investment in an Open Economy with Non-Traded Goods," NBER Working Papers 2141, National Bureau of Economic Research, Inc.
- Hirofumi Uzawa, 1961. "On a Two-Sector Model of Economic Growth," Review of Economic Studies, Oxford University Press, vol. 29(1), pages 40-47.
- H. Oniki & H. Uzawa, 1965. "Patterns of Trade and Investment in a Dynamic Model of International Trade," Review of Economic Studies, Oxford University Press, vol. 32(1), pages 15-37.
- 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.
- Stiglitz, Joseph E, 1970. "Factor Price Equalization in a Dynamic Economy," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 456-488, May-June.
- Roubini, N., 1989.
"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.
- Nouriel Roubini, 1988. "Current Account and Budget Deficits in an Intertemporal Model of Consumption and Taxation Smoothing. A Solution to the "Feldstein-Horioka Puzzle"?," NBER Working Papers 2773, National Bureau of Economic Research, Inc.
- 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 555-580, December.
- Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557-557.
- Willem H. Buiter, 1979.
"Time Preference and International Lending and Borrowing in an Overlapping-Generations Model,"
NBER Working Papers
0352, National Bureau of Economic Research, Inc.
- Buiter, Willem H, 1981. "Time Preference and International Lending and Borrowing in an Overlapping-Generations Model," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 769-797, August.
- Uekawa, Yasuo, 1972. "On the existence of incomplete specialization in international trade with capital mobility," Journal of International Economics, Elsevier, vol. 2(1), pages 1-23, February.
- Robert A. Becker, 1980. "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 375-382.
- 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.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3457. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.