Specialization in a dynamic trade model: An overlapping generations case

Abstract

We explore a small open economy with overlapping generations to show that demographic structure is an important factor for the determination of a production pattern in the dynamic trade theory. In the representative agent model, Baxter (1992) shows that even if there are two commodities and two production factors, there is a Ricardian implication that opening up to trade leads to perfect specialization in a small open economy. In contrast, using the overlapping generations model, we find that the heterogeneity of the economic agents generally makes imperfect specialization occur. We also find that whether the stability condition holds or not is crucial for the determination of the long-run production pattern.Specialization, dynamic Heckscher-Ohlin model, overlapping generations,

Convergence and Overtaking in a Dynamic two Country Model

“…Bajona and Kehoe (2006-who have a many-period overlapping generations models, (they also discuss capital flows), Bianconi (1995) who has a two period overlapping generations structure and Kaneko (2006) with a continuous time uncertain lifetimes structure.…”

“…Thus there is no convergence i.e. the initial differences in consumption never disappear (see , Atkeson and Kehoe (2000), Bajona andKehoe (2006 and, Chaterjee and Shukayev (2012); see also Baxter (1992), Bianconi (1995) and Kaneko (2006). vi The intuition for this result is that with factor-price-equalization, asset trade that was missing from the model (via the absence of borrowing and lending) is, in effect, achieved by commodity trade.…”

Uncertain lifetimes and convergence in a two-country Heckscher–Ohlin model

“…I use the simpler model of Blanchard for the problem at hand. iv See Kaneko (2006) for a small country model with uncertain lives and a two-sector production structure. He showed that the small open economy is diversified in production (see also Baxter (1992) and Bianconi (1996) on this).…”

“…This finding has spawned a sizable literature, see e.g. Atkeson and Kehoe (2000), Bajona and Kehoe (2010), Baxter (1992), Bianconi (1996), Brecher et al (2002)), Caliendo (2009), Chatterjee and Shukayev (2012), Maffezzoli (2004a and2004b), Francois and Shiells (2008), Kaneko (2006), Mountford (1998), Sen and Shimomura (2013) and Ventura (1997).…”

International Asset Trade, Capital Income Taxation, and Specialization Patterns

“…Many researchers analyze long-run determinants of specialization patterns in dynamic HO models. Using of overlapping-generations (OG) models Matsuyama (1988a), Bianconi (1995a), Mountford (1999), and Kaneko (2006) show that an economy may well produce both commodities in the long run even if there is international 1 See Chapter 2 of Frenkel, Razin, and Sadka (1991) and Chapter 6 of Turnovsky (1997) for more detailed explanations on the residence and source principles. See also Iwamoto and Shibata (1999) for the deviations of the actual tax systems from the two principles.…”