Advertisement

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

  • Partha Sen
Chapter

Abstract

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.

Keywords

Euler Equation Time Preference Marginal Product Factor Price Small Open Economy 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

References

  1. Atkeson, A., & Kehoe, P. J. (2000). “Paths of development for early- and late-boomers in a dynamic heckscher-ohlin model.” Research Staff Report No. 256, Federal Reserve Bank of Minneapolis.Google Scholar
  2. Bajona, C., & Kehoe, T. J. (2006). “Demographics in Dynamic Heckscher-Ohlin Models: Overlapping generations versus infinitely lived consumer.” Research Staff Report No. 377, Federal Reserve Bank of Minneapolis.Google Scholar
  3. Bajona, C., & Kehoe, T. J. (2010). Trade, growth, and convergence in a Dynamic Heckscher-Ohlin Model. Review of Economic Dynamics, 13, 487–513.CrossRefGoogle Scholar
  4. Barro, R. J., & Sala-i-Martin, X. (2003). Economic growth (2nd Ed.). MIT Press.Google Scholar
  5. Blanchard, O.-J. (1985). Deficits, Debt and Finite Horizons, Journal of Political Economy, 93, 223-247.Google Scholar
  6. Buiter, W. H. (1988). Death, birth, productivity growth and debt neutrality. Economic Journal, 98, 279–293.CrossRefGoogle Scholar
  7. Chen, Z. (1992). Long-run Equilibria in a Dynamic Heckscher-Ohlin Model. Canadian Journal of Economics, 23, 923–943.CrossRefGoogle Scholar
  8. Eaton, J. (1987). A dynamic specific-factors model of international trade. Review of Economic Studies, 54, 325–338.CrossRefGoogle Scholar
  9. Eaton, J. (1988). Foreign-owned land. American Economic Review, 78, 76–88.Google Scholar
  10. Joseph, F., & Shiells, C. R. (2008). “Dynamic factor price equalization and international convergence.” Johannes Kepler University of Linz, Working Paper No. 0820.Google Scholar
  11. Neary, P. (1978). Short-run capital specificity and the Pure Theory of International Trade. Economic Journal, 88, 488–512.CrossRefGoogle Scholar
  12. Sanyal, K. K., & Jones, R. W. (1982). The theory of trade in middle products. The American Economic Review, 72, 16–3.Google Scholar
  13. Sen, P. (2012a). “Capital accumulation and convergence in a small open economy”, Review of International Economics (forthcoming).Google Scholar
  14. Sen, P. (2012b). Finite lives and convergence in a Two-Country Heckscher-Ohlin Model. Mimeo: Delhi School of Economics.Google Scholar
  15. Sen, P., & Shimomura, K. (2012). Convergence in a Two-Country Dynamic Trade Model. Mimeo: Delhi School of Economics.Google Scholar
  16. Ventura, J. (1997). Growth and interdependence. Quarterly Journal of Economics, 112, 57–84.CrossRefGoogle Scholar

Copyright information

© Springer India 2014

Authors and Affiliations

  1. 1.Centre for Development EconomicsDelhi School of EconomicsDelhiIndia

Personalised recommendations