Skip to main content Accessibility help
×
×
Home

POVERTY TRAPS AND INFERIOR GOODS IN A DYNAMIC HECKSCHER–OHLIN MODEL

  • Eric W. Bond (a1), Kazumichi Iwasa (a2) and Kazuo Nishimura (a2)
Abstract

We extend the dynamic Heckscher–Ohlin model in Bond et al. [Economic Theory (48, 171–204, 2011)] and show that if the labor-intensive good is inferior, then there may exist multiple steady states in autarky and poverty traps can arise. Poverty traps for the world economy, in the form of Pareto-dominated steady states, are also shown to exist. We show that the opening of trade can have the effect of pulling the initially poorer country out of a poverty trap, with both countries having steady state capital stocks exceeding the autarky level. However, trade can also pull an initially richer country into a poverty trap. These possibilities are a sharp contrast with dynamic Heckscher–Ohlin models with normality in consumption, where the country with the larger (smaller) capital stock than the other will reach a steady state where the level of welfare is higher (lower) than in the autarkic steady state.

Copyright
Corresponding author
Address correspondence to: Kazuo Nishimura, KIER, Kyoto University, Yoshida-Honmachi, Sakyo-ku, Kyoto 606-8501, Japan; e-mail: nishimura@kier.kyoto-u.ac.jp.
References
Hide All
Atkeson, Andrew and Kehoe, Patrick J. (2000) Paths of Development for Early- and Late-Boomers in a Dynamic Heckscher–Ohlin Model. Research Staff Report 256, Federal Reserve Bank of Minneapolis.
Azariadis, Costas (1996) The economics of poverty traps: Part one. Complete markets. Journal of Economic Growth 1, 449486.
Bond, Eric W., Iwasa, Kazumichi, and Nishimura, Kazuo (2011) A dynamic two country Heckscher–Ohlin model with non-homothetic preferences. Economic Theory 48, 171204.
Chen, Zhiqi (1992) Long-run equilibria in a dynamic Heckscher–Ohlin model. Canadian Journal of Economics 25, 923943.
Doi, Junko, Iwasa, Kazumichi, and Shimomura, Koji (2007) Indeterminacy in the free-trade world. Journal of Difference Equations and Applications 13, 135149.
Doi, Junko, Iwasa, Kazumichi, and Shimomura, Koji (2009) Giffen behavior independent of the wealth level. Economic Theory 41, 247267.
Jensen, Robert T. and Miller, Nolan H. (2008) Giffen behavior and subsistence consumption. American Economic Review 98, 15531577.
Kurz, Mordecai (1968) Optimal economic growth and wealth effects. International Economic Review 9, 348357.
Matsuyama, Kiminori (2008) Poverty traps. In Durlauf, Steven N. and Blume, Lawrence E. (eds.), The New Palgrave Dictionary of Economics (2nd ed.), Vol. 6, pp. 561565. New York: Palgrave Macmillan.
Nishimura, Kazuo and Shimomura, Koji (2002) Trade and indeterminacy in a dynamic general equilibrium model. Journal of Economic Theory 105, 244259.
Nishimura, Kazuo and Shimomura, Koji (2006) Indeterminacy in a dynamic two-country model. Economic Theory 29, 307324.
Ventura, Jaume (1997) Growth and interdependence. Quarterly Journal of Economics 112, 5784.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Keywords

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed