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Public Infrastructure Strategically Supplied by Governments and Trade in a Ricardian Economy

Author

Listed:
  • Nobuhito Suga
  • Makoto Tawada
  • Akihiko Yanase

Abstract

In a simple two-country Ricardian economy with public infrastructures, we consider a simultaneous and non-cooperate game between governments with respect to public infrastructure supply. Then it is shown that a country with larger (smaller) factor endowment exports a good whose production is more (less) dependent on public infrastructures, and both countries will gain from trade as long as factor endowment differs between countries. However, the following special features appear. (i) Any incompletely specialising country produces two goods at an inner point of the production possibility set. (ii) If factor endowment is the same between countries, the trading equilibrium is attained by the pattern of specialisation such that each country specialises in one good different from each other and both countries become better off. Which country specialises in which good is indeterminate. The result shows a typical case of symmetric breaking. JEL codes: F11, H41

Suggested Citation

  • Nobuhito Suga & Makoto Tawada & Akihiko Yanase, 2023. "Public Infrastructure Strategically Supplied by Governments and Trade in a Ricardian Economy," Foreign Trade Review, , vol. 58(1), pages 68-99, February.
    • Handle: RePEc:sae:fortra:v:58:y:2023:i:1:p:68-99
    DOI: 10.1177/00157325221119043
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    More about this item

    Keywords

    Public infrastructure; Nash equilibrium; comparative advantage; Ricardian economy;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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