Trade and Indeterminacy in a Dynamic General Equilibrium Model

Abstract

This paper introduces sector-speci…c externalities in the Heckscher-Ohlin two-country dynamic general equilibrium model to show that indeterminacy of the equilibrium path in the world market can occur. Under certain conditions in terms of factor intensities, there are multiple equilibrium paths from the same initial distribution of capital in the world market, and the distribution of capital in the limit di¤ers among equilibrium paths. One equilibrium path converges to a long-run equilibrium in which the international ranking of factor endowment ratios di¤ers from the initial ranking; another equilibrium path maintains the initial ranking and converges to another long-run equilibrium. Since the path realized is indeterminate, so is the long-run trade pattern. Therefore, the Long-Run Heckscher-Ohlin prediction is vulnerable to the introduction of externality.

Real Indeterminacy of Stationary Monetary Equilibria in Centralized Economies

“…() find continuum of Markov stationary equilibria in OLG framework. In addition, Nishimura and Shimomura () show a dynamic trade model with a continuum of stationary equilibria.…”

Global effects of national fiscal policy in a multi-country growth model with capital accumulation

“…The basic framework of our model is influenced by the Oniki-Uzawa model (e.g., Ikeda and Ono, 1992). Since Oniki and Uzawa (1965) published the well-known neoclassical trade theory with capital accumulation, various trade models with endogenous capital have been proposed (e.g., Deardorff, 1973;Ruffin, 1979;Findlay, 1984;Frenkel and Razin, 1987;Eaton, 1987;Brecher et al, 2002;Nishimura and Shimomura, 2002;Sorger, 2002). Our study is different from the previous models in that our model is for any number of countries, while most of the previous models are for two countries; this study uses an alternative approach to household behaviour.…”

Trade and indeterminacy revisited

“…This paper re‐examines the dynamic Heckscher–Ohlin model developed in Nishimura and Shimomura () with an emphasis on whether opening trade causes stabilizing or destabilizing effects on the world trade market. Equilibrium paths are defined as globally indeterminate if, for given any initial capital stocks, the steady‐state capital stocks to which the equilibrium path converges will vary depending households’ expectations.…”