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Do We Have to Consider International Capital Mobility in Trade Models?

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  • Springer, Katrin

Abstract

The traditional trade theory predicts that trade in goods perfectly substitutes for direct movement of factors. This equivalence between goods trade and factor movements, however, depends crucially on assumptions about the production. This paper establishes necessary and sufficient conditions which describe the relationship between goods trade and capital mobility in a 2x2x2 trade model with internationally mobile capital. It identifies possible ways of incorporating capital mobility into a multi-regional, multi-sectoral Computable General Equilibrium framework. The consideration of capital mobility leads to other allocational and distributional outcomes of policy scenarios if there exists differences in production technologies across regions, trade impediments, or distortions in product or factor markets.

Suggested Citation

  • Springer, Katrin, 2000. "Do We Have to Consider International Capital Mobility in Trade Models?," Kiel Working Papers 964, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwkwp:964
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    File URL: https://www.econstor.eu/bitstream/10419/17828/1/kap964.pdf
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    References listed on IDEAS

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    Cited by:

    1. Deke, Oliver & Peterson, Sonja, 2003. "Integrated climate modelling at the Kiel Institute for World Economics: The DART Model and its applications," Open Access Publications from Kiel Institute for the World Economy 4236, Kiel Institute for the World Economy (IfW).

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