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Finance, Trade, Man and Machines: A New-Ricardian Heckscher-Ohlin-Samuelson Model

Author

Listed:
  • Sugata Marjit
  • Gouranga Gopal Das

Abstract

This paper attempts to build up a Heckscher-Ohlin-Samuelson model of production and trade where capital is introduced outside the production process as a financial capital or credit as per the classical Ricardian wage fund framework. Stock of credit or financial capital as past savings, finances employment and machines or capital goods used in the process of production with Ricardian fixed coefficient technology. We derive the relationship between factor prices and rate of interest on one hand and relative price and endowments on the other. Availability of finance does not impact production or pattern of trade only nominal factor prices. International financial flows will not alter pattern of trade, but movement of labour and machines will. Such results change drastically when we consider a model with unemployment and finance dictates real outcomes much more than before. Introducing finance affects trade patterns with unemployment and especially with imperfect credit markets. The results could explain a vast array of stylized facts such as, financial crisis or shock, credit rationing and their impact on production, trade and unemployment. The paper has policy implications for role of financial development, quality of institutions in economic development.

Suggested Citation

  • Sugata Marjit & Gouranga Gopal Das, 2022. "Finance, Trade, Man and Machines: A New-Ricardian Heckscher-Ohlin-Samuelson Model," CESifo Working Paper Series 9672, CESifo.
    • Handle: RePEc:ces:ceswps:_9672
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    References listed on IDEAS

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    1. Mandal, Biswajit & Roy Chakraborty, Labani & Sanyal, Alapan, 2023. "A Hybrid Mode of Production, Transaction, and Economic Growth: Implication of Digitalization," MPRA Paper 116960, University Library of Munich, Germany.

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    More about this item

    Keywords

    wage-fund; Heckscher-Ohlin-Samuelson; Ricardo; inequality; credit; general equilibrium; financial development; unemployment; trade;
    All these keywords.

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • B17 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - International Trade and Finance
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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