Trade with Endogenous Capital and Knowledge

Abstract

The previous chapters examined various aspects of international trades. We showed how trade patterns are related to capital accumulation, preferences and sexual division of labor. But in all these models we assumed that human capital is endogenously given. This chapter suggests a dynamic one-commodity and multiple-country trade model to examine interactions between savings rates, trade, knowledge utilization and creativity. Although our model is similar to the dynamic one-commodity and two- country trade model with endogenous human capital (e.g., Wang, 1990), we treat knowledge differently. We consider knowledge as an international public good in the sense that all countries access to knowledge and the utilization of knowledge by one country does not affect that by others. Due to cultural differences, educational systems and policies, knowledge utilization efficiency and creativity differ between countries.