Abstract
In two-sector dynamic trade models with infinitely-lived agents in the presence of factor–price-equalization, convergence of aggregate capital-labor ratios and incomes does not occur. The Euler equation implies equal growth rate of consumption in all trading economies. With finite lives capital-labor ratios do get equalized. In a dynamic specific factors model, we show that factor–price-equalization occurs only in the long run with infinitely lived agents. With finite lives, even in the steady state there is no factor price equalization.
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