Abstract
The purpose of this study is to analyse the role of preferences and technological differences between countries in determining dynamics of capital accumulation, wealth and income distribution within countries and between countries, and patterns of trade in a dynamic general equilibrium framework. The model is built by integrating Walrasian general equilibrium, neoclassical growth, and H O international trade theories. The model is built for any number of countries and each country is composed of three production sectors and heterogeneous households. The national growth mechanism is the same as that in neoclassical growth theory. Labour and capital distributions among sectors and among countries are determined under perfect competition and free trade. The model synthesizes the well-known H O and the Oniki-Uzawa trade models, Solow-Uzawa neoclassical growth theory, and Walrasian general equilibrium theory with Zhang's utility function. We simulated the model with three national economies and with two groups of households for each country. We identified the existence of equilibrium points and plot motion of the dynamic system. We also conducted a comparative dynamic analysis.
Highlights
A growth theory based on Walrasian general equilibrium, Solow-Uzawa growth, and. It is a challenging question in trade theory to study the role of preferences and technological differences between countries in determining dynamics of capital accumulation, wealth and income distribution within countries and between countries, and patterns of trade in a dynamic general equilibrium framework
This study makes a contribution to the literature of trade theory by integrating Walrasian general equilibrium, neoclassical growth, and Heckscher-Ohlin (H-O) international trade theories with Zhang’s approach to household behaviour
This study is influenced by the Walrasian general equilibrium theory
Summary
It is a challenging question in trade theory to study the role of preferences and technological differences between countries in determining dynamics of capital accumulation, wealth and income distribution within countries and between countries, and patterns of trade in a dynamic general equilibrium framework. Each country produces a homogeneous capital consumer good which can be used as capital and consumption This sector is called industrial sector, which is similar to the homogenous sector in the traditional neoclassical trade growth model [12]. Q 1 where ji0 is called household (j, n)’s propensity to consume industrial goods, jn0 propensity to consume domestic service, jnq0 propensity to consume global commodity j and jn0 propensity to own wealth. Country 1’s national output and capital employed rise and the other two economies’ national incomes and capital stocks employed fall initially and slightly change in the long term. The wage rates in country rise and the wage rates in the other two economies fall initially and change slightly in the long term. The representative households of country consume more industrial goods and services in the long term. The other two economies’ households reduce their consumption levels of country 1’ specified good and change slightly consumption levels of the two economies’ specified goods
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