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Dynamic two-country Heckscher–Ohlin model with externality

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  • Kazumichi Iwasa
  • Kazuo Nishimura

Abstract

type="main" xml:lang="en"> We extend a dynamic Heckscher–Ohlin model with production externality presented in recent work by Nishimura and Shimomura by assuming a consumable capital good. Following work by Bond, Iwasa, and Nishimura, we define a steady-state excess demand function and derive the locus of home and foreign capital stocks that are consistent with a steady-state equilibrium under free trade. Also, we examine the relationship between externality and local dynamics in autarky or under free trade, which includes a phase diagram analysis. Then we show that opening trade can generate expectation-driven fluctuations in a world trade market.

Suggested Citation

  • Kazumichi Iwasa & Kazuo Nishimura, 2014. "Dynamic two-country Heckscher–Ohlin model with externality," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(1), pages 53-74, March.
    • Handle: RePEc:bla:ijethy:v:10:y:2014:i:1:p:53-74
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    Cited by:

    1. Antoine Le Riche, 2016. "Macroeconomic Volatility and Trade in OLG Economies," Working Papers halshs-01079773, HAL.
    2. Takashi Kamihigashi, 2015. "Multiple interior steady states in the Ramsey model with elastic labor supply," International Journal of Economic Theory, The International Society for Economic Theory, vol. 11(1), pages 25-37, March.
    3. Boucekkine, Raouf & Kazuo, Nishimura & Venditti, Alain, 2017. "Introduction to international financial markets and banking systems crises," Journal of Mathematical Economics, Elsevier, vol. 68(C), pages 87-91.
    4. Antoine Le Riche, 2017. "Macroeconomic volatility and trade in OLG economies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(4), pages 401-425, December.
    5. Antoine Le Riche, 2014. "Macroeconomic Volatility and Trade in OLG Economies," AMSE Working Papers 1446, Aix-Marseille School of Economics, France, revised Nov 2014.
    6. Le Riche, Antoine & Lloyd-Braga, Teresa & Modesto, Leonor, 2022. "Intra-industry trade, involuntary unemployment and macroeconomic stability," Journal of Mathematical Economics, Elsevier, vol. 99(C).

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