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Fiscal Spending, Relative‐Price Dynamics, and Welfare in a World Economy

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  • Yoshiyasu Ono
  • Akihisa Shibata

Abstract

This paper analyzes the dynamics of a 2 × 2 × 2 Heckscher–Ohlin model where foreign asset holdings and capital accumulation are independently determined by optimizing agents. Each country has two production sectors, both of whose products are used for consumption, and an investment sector, which uses one of the two commodities to accumulate real capital. In this setting we examine the effects of fiscal spending on the equilibrium paths of interest rates and prices and each country's lifetime utility. The welfare effect is found to consist of the static terms‐of‐trade effect, the dynamic foreign asset effect and the direct income‐loss effect.

Suggested Citation

  • Yoshiyasu Ono & Akihisa Shibata, 2005. "Fiscal Spending, Relative‐Price Dynamics, and Welfare in a World Economy," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 216-236, May.
    • Handle: RePEc:bla:reviec:v:13:y:2005:i:2:p:216-236
    DOI: 10.1111/j.1467-9396.2005.00500.x
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    1. Yoshiyasu Ono & Akihisa Shibata, 2006. "Long‐run Specialization," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 1-15, February.
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    Cited by:

    1. Zhang, Wei-Bin, 2016. "Economic Globalization and Interregional Agglomeration in a Multi-Country and Multi-Regional Neoclassical Growth Model," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 34, pages 95-121.
    2. Yoshiyasu Ono & Akihisa Shibata, 2010. "Time Patience and Specialization Patterns in the Presence of Asset Trade," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(1), pages 93-112, February.
    3. Karl FARMER & Birgit FRIEDL & Andreas RAINER, 2008. "Unilateral Reduction of Emission Permits, Terms of Trade, Capital Accumulation, and Welfare in a World Economy: Theoretical and Numerical Analysis," EcoMod2008 23800036, EcoMod.
    4. Yoshiyasu Ono & Akihisa Shibata, 2006. "Capital Income Taxation and Specialization Patterns: Investment Tax vs. Saving Tax," ISER Discussion Paper 0649, Institute of Social and Economic Research, Osaka University.
    5. Birgit Bednar-Friedl & Karl Farmer & Andreas Rainer, 2010. "Effects of Unilateral Climate Policy on Terms of Trade, Capital Accumulation, and Welfare in a World Economy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(4), pages 495-520, December.
    6. Wei-Bin Zhang, 2016. "Endogenous Population Dynamics and Economic Growth with Free Trade between Countries," Social Sciences and Education Research Review, Department of Communication, Journalism and Education Sciences, University of Craiova, vol. 3(1), pages 3-30, May.
    7. Claustre Bajona & Timothy Kehoe, 2010. "Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 487-513, July.
    8. Wei-Bin Zhang, 2015. "National Education and Global Economic Growth: A Synthesis of the Uzawa–Lucas Two-Sector and the Oniki–Uzawa Trade Models," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 6(4), pages 905-928, December.
    9. Karl Farmer & Matthias Schelnast, 2013. "Public Debt Reduction in Advanced Countries and Its Impact on Emerging Countries," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(2), pages 167-188, May.
    10. Wei-Bin Zhang, 2014. "Global Economic Growth and Environmental Change," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 64(3), pages 3-29, July-Sept.
    11. Takumi Naito & Ryoji Ohdoi, 2011. "A two-country model of trade and growth with intersectoral knowledge spillovers," Journal of Economics, Springer, vol. 103(1), pages 39-58, May.

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