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Title: Neoclassical Growth and Commodity Trade

Author(s): Alejandro Cu�at and Marco Maffezzoli

Publication Date: April 2002

Keyword(s): convergence, economic growth, heckscher-Ohlin, international trade and simulation

Programme Area(s): International Trade and Regional Economics

Abstract: We construct and numerically solve a dynamic Heckscher-Ohlin model in which the initial distribution of production factors in the world makes worldwide factor price equalization impossible, and leads countries to group in two diversification cones. We study the dynamics of income per capita and factor prices. Our results suggest that the Ramsey model under complete specialization overcomes several shortcomings of its autarky and factor price equalization counterparts. In comparison with the autarky model, for example, it can produce similar transitional dynamics and account for important cross-sectional differences in the levels and growth rates of income per capita while generating much smaller rental-rate differentials across countries. Moreover, it does not necessarily yield convergence in levels for identically parameterized economies. All in all, the Ramsey/Complete Specialization model seems to provide a better benchmark from which to depart when studying the dynamic behaviour of countries and cross-sectional differences in income per capita levels and growth rates.

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Bibliographic Reference

Cu�at, A and Maffezzoli, M. 2002. 'Neoclassical Growth and Commodity Trade'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3322