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Poverty Traps And Inferior Goods In A Dynamic Heckscher–Ohlin Model

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  • Bond, Eric W.
  • Iwasa, Kazumichi
  • Nishimura, Kazuo

Abstract

We extend the dynamic Heckscher–Ohlin model in Bond et al. [Economic Theory (48, 171–204, 2011)] and show that if the labor-intensive good is inferior, then there may exist multiple steady states in autarky and poverty traps can arise. Poverty traps for the world economy, in the form of Pareto-dominated steady states, are also shown to exist. We show that the opening of trade can have the effect of pulling the initially poorer country out of a poverty trap, with both countries having steady state capital stocks exceeding the autarky level. However, trade can also pull an initially richer country into a poverty trap. These possibilities are a sharp contrast with dynamic Heckscher–Ohlin models with normality in consumption, where the country with the larger (smaller) capital stock than the other will reach a steady state where the level of welfare is higher (lower) than in the autarkic steady state.

Suggested Citation

  • Bond, Eric W. & Iwasa, Kazumichi & Nishimura, Kazuo, 2013. "Poverty Traps And Inferior Goods In A Dynamic Heckscher–Ohlin Model," Macroeconomic Dynamics, Cambridge University Press, vol. 17(6), pages 1227-1251, September.
    • Handle: RePEc:cup:macdyn:v:17:y:2013:i:06:p:1227-1251_00
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    Cited by:

    1. Azarnert, Leonid V., 2016. "Transportation Costs And The Great Divergence," Macroeconomic Dynamics, Cambridge University Press, vol. 20(1), pages 214-228, January.
    2. Eric W. Bond & Kazumichi Iwasa & Kazuo Nishimura, 2012. "The dynamic Heckscher–Ohlin model: A diagrammatic analysis," International Journal of Economic Theory, The International Society for Economic Theory, vol. 8(2), pages 197-211, June.
    3. Yasuhiro Nakamoto & Kazuo Mino & Yunfang Hu, 2024. "Preference Structures, Wealth Distribution, and Patterns of Trade in a Global Economy," KIER Working Papers 1105, Kyoto University, Institute of Economic Research.
    4. Tatsuya Asami, 2021. "Timing of international market openings and shrinking middle‐income class," Review of Development Economics, Wiley Blackwell, vol. 25(4), pages 2275-2297, November.
    5. Azarnert, Leonid V., 2018. "Trade, Luxury Goods, And A Growth-Enhancing Tariff," Macroeconomic Dynamics, Cambridge University Press, vol. 22(6), pages 1462-1474, September.
    6. Eric W. Bond & Kazumichi Iwasa & Kazuo Nishimura, 2011. "A Dynamic Heckscher-Ohlin Model and Inferior Goods," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 18(3), pages 217-236.

    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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