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The Wage Fund Theory and the Gains from Trade in a Dynamic Ricardian Model

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  • Sugata Marjit
  • Noritsugu Nakanishi

Abstract

This paper explores the role of wage fund as the basic source of credit, capital or finance in a dynamic Ricardian model, which consists of three classes of agents: the workers, the capitalist, and the producers of goods. We introduce and develop an elaborate dynamic wage fund model in the context of contemporary economic theory. The modified golden rule can be derived based on a mechanism significantly different from the standard Ramsey-Cass-Koopmans optimal growth framework. We also show that, although international trade in a static setting in the wage fund framework has real asymmetric distributional effects on the welfare of the agents just like the Stolper-Samuelson theorem, those asymmetric distributional impacts are nullified in the dynamic setting. In fact, trade liberalization is Pareto improving along the balanced growth path.

Suggested Citation

  • Sugata Marjit & Noritsugu Nakanishi, 2021. "The Wage Fund Theory and the Gains from Trade in a Dynamic Ricardian Model," CESifo Working Paper Series 9218, CESifo.
    • Handle: RePEc:ces:ceswps:_9218
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp9218.pdf
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    References listed on IDEAS

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    Cited by:

    1. Sugata Marjit & Meghna Dutta & Moushakhi Roy, 2022. "Role of Finance in Dixit-Stiglitz-Krugman Model of International Trade," CESifo Working Paper Series 9804, CESifo.

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    More about this item

    Keywords

    wage fund; Ricardo model; modified golden rule; gains from trade; balanced growth path;
    All these keywords.

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • B17 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - International Trade and Finance
    • F10 - International Economics - - Trade - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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