Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model

Posted: 25 Jul 2008

See all articles by Claustre Bajona

Claustre Bajona

Ryerson University

Timothy J. Kehoe

University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: October 1, 2006

Abstract

This paper studies the properties of a dynamic Heckscher-Ohlin model-a combination of a static two-good, two-factor Heckscher-Ohlin trade model and a two-sector growth model-with infinitely lived consumers where international borrowing and lending are not permitted. We obtain two main results: First, even if factor prices are equalized, countries that differ only in their initial endowments of capital per worker may converge or diverge in income levels over time, depending on the elasticity of substitution between traded goods. Divergence can occur for parameter values that would imply convergence in a world of closed economies and vice versa. Second, factor price equalization in a given period does not imply factor price equalization in future periods.

Keywords: International Trade, Heckscher-Ohlin, Economic Growth, Convergence

JEL Classification: F11, E43, O15, O41

Suggested Citation

Bajona, Claustre and Kehoe, Timothy J., Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model (October 1, 2006). Available at SSRN: https://ssrn.com/abstract=1172022

Claustre Bajona (Contact Author)

Ryerson University ( email )

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Timothy J. Kehoe

University of Minnesota - Twin Cities - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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