Working Paper: NBER ID: w12566
Authors: Claustre Bajona; Timothy J. Kehoe
Abstract: This paper contrasts the properties of dynamic Heckscher-Ohlin models with overlapping generations with those of models with infinitely lived consumers. In both environments, if capital is mobile across countries, factor price equalization occurs after the initial period. In general, however, the properties of equilibria differ drastically across environments: With infinitely lived consumers, we find that factor prices equalize in any steady state or cycle and that, in general, there is positive trade in any steady state or cycle. With overlapping generations, in contrast, we construct examples with steady states and cycles in which factor prices are not equalized, and we find that any equilibrium that converges to a steady state or cycle with factor price equalization has no trade after a finite number of periods.
Keywords: dynamic Heckscher-Ohlin models; overlapping generations; infinitely lived consumers; factor price equalization; international trade
JEL Codes: F11; F43; O15; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| dynamic Heckscher-Ohlin models with infinitely lived consumers (F12) | factor prices equalize (F16) |
| overlapping generations models (D15) | steady states where factor prices do not equalize (F16) |
| allowance of international borrowing and lending (F34) | factor price equalization occurs after the initial period (F16) |
| equilibrium converging to a steady state with factor price equalization (F16) | becomes autarkic after a finite number of periods (D52) |
| demographic structure influences long-term trade and price dynamics (J11) | equilibria can converge to autarky (D50) |