Journal
JOURNAL OF ECONOMIC THEORY
Volume 105, Issue 1, Pages 244-260Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1006/jeth.2001.2892
Keywords
indeterminacy; externality; two-country Heckscher-Ohlin model; trade pattern
Categories
Ask authors/readers for more resources
This paper introduces sector-specific externalities in the Heckscher Ohlin two-country dynamic general equilibrium model to show that indeterminacy of the equilibrium path in the world market can occur. Under certain conditions in terms of factor intensities, there are multiple equilibrium paths from the same initial distribution of capital in the world market, and the distribution of capital in the limit differs among equilibrium paths. One equilibrium path converges to a long-run equilibrium in which the international ranking of factor endowment ratios differs from the initial ranking; another equilibrium path maintains the initial ranking and converges to another Iong-run equilibrium. Since the path realized is indeterminate, so is the long-run trade pattern. Therefore, the Long-Run Heckscher-Ohlin prediction is vulnerable to the introduction of externality. Journal of Economic Literature Classification Numbers: E13, E32, F11, F43. (C) 2002 Elsevier Science (USA).
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available