Convergence in a Three-Factor Dynamic Model: Finite Versus Infinite Lives

  • Partha Sen


In two-sector dynamic trade models with infinitely-lived agents in the presence of factor–price-equalization, convergence of aggregate capital-labor ratios and incomes does not occur. The Euler equation implies equal growth rate of consumption in all trading economies. With finite lives capital-labor ratios do get equalized. In a dynamic specific factors model, we show that factor–price-equalization occurs only in the long run with infinitely lived agents. With finite lives, even in the steady state there is no factor price equalization.


Euler Equation Time Preference Marginal Product Factor Price Small Open Economy 
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Copyright information

© Springer India 2014

Authors and Affiliations

  1. 1.Centre for Development EconomicsDelhi School of EconomicsDelhiIndia

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