This chapter investigates a two-country model of capital accumulation with country-specific production externalities. The main concern of our discussion is to explore the presence of equilibrium indeterminacy in an open economy setting. In contrast to the existing studies on equilibrium indeterminacy in small-open economies, the present chapter demonstrates that opening up international trade and financial interactions between two counties does not necessarily enhance the possibility of indeterminacy of equilibrium. It is shown that the results depend heavily upon not only the degree of external increasing returns but also the preference structures.
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Mino, K. (2009). Preference Structure and Volatility in a Financially Integrated World. In: Kamihigashi, T., Zhao, L. (eds) International Trade and Economic Dynamics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-78676-4_23
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DOI: https://doi.org/10.1007/978-3-540-78676-4_23
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