Growth with International Trade and Urban Pattern Formation

Abstract

So far we have been concerned with isolated economies. International trade was neglected in our analysis. The purpose of this chapter is to propose a simple two- country and one-commodity trade growth model with free capital mobility and urban pattern formation to provide some insights into relationships between commodity prices, factor prices, land values, production, preferences and trade volumes. The growth aspects of our model is based on the international macroeconomic one-sector growth model with perfect capital mobility. Irrespective of the analytical complexity of two-country, dynamic models with capital accumulation, many efforts have been made to examine the impact of savings, technology and various policies on trade patterns within this framework (e.g., Oniki and Uzawa, 1965, Bradhan, 1965, Rodriguez, 1975, Frenkel and Razin, 1987, Ruffin, 1979, Buiter, 1981, Fidlay, 1984, Rauch, 1991). Our modeling framework is based on the dynamic one-sector and two- country model (e.g., Wang, 1990, Ikeda and Ono, 1992, Devereux and Shi, 1991, Zhang, 1994c, 1995a, Tumovsky, 1997). We model behavior of households differently from these one-sector trade growth models in that we explicitly introduce consumption, savings and residential location in modeling decision makings of the households in the two countries.