LESSONS ABOUT GROWTH, CONVERGENCE AND TRADE FROM ANALYTICAL AND NUMERICAL SOLUTIONS OF A 2x2 OVERLAPPING GENERATIONS MODEL FOR A GROWING-POPULATION ECONOMY
We study the time paths of different variables on the way to the analytically obtained long-run autarky equilibrium for a 2-sector, 2-factor overlapping generations economy under different initial conditions and parameter confÄ±gurations, and investigate implications of the initial conditions for convergence and growth. We then proceed to study the sensitivity of dynamic equilibrium to changes in the population growth rate and explore how differences in demographic characteristics across countries may create the basis for long-run comparative advantages opening the way for free trade between two countries that are identical except for population growth rates in much the same way as done in the Heckscher-Ohlin (HO) model. Our results establish that population growth rate differences will serve as determinants of HO-type comparative advantages but free trade will not necessarily imply welfare gains for both parties unlike what the static HO model would predict. The explanation we offer for this nicely complements previously suggested reasons in the dynamic trade literature to explain why trade may not improve welfare for both parties in a dynamic OLG set-up with stationary populations.
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