Non-traded Goods and the Balance on Current Account

Abstract

The first extension of the basic model in chapter 3, will be to add a second production sector to the small raw material importing country. The assumption made so far, namely that the goods price is determined in the world market and cannot be influenced by the country itself, is quite realistic for a traded good and a small country. In all countries, however, there are other, non-traded goods, which frequently make up more than half of the national product, and whose prices are not determined, at least not directly, in the world markets. Every external disturbance, whose influence is, realistically, not exactly the same in the two sectors, will result in internal intersectoral effects.