Regions may share factors of production, too: Implementation of topologies within the World Trade Model

Abstract

ABSTRACT The World Trade Model (WTM), which incorporates input - output data and minimizes global factor costs subject to satisfying demands while being constrained by each region's factor endowments, is one of models based on the principle of comparative advantage. These factor endowments are not necessarily fixed in each region as traditionally posed in most theories, but rather can or de facto be shared across regions. We highlight the importance of this feature for economic modeling, and then introduce an extension for the integration of topological rules into WTM to facilitate the sharing of factors with directionality (one-way or two-way) across regions. A series of numerical examples illustrating a range of sharing scenarios is demonstrated to facilitate an examination of this extension's features. Finally, we discuss the most interesting cases in which this topology can be used, as well as the additional challenges or implementations that can be derived from this work.