Virtual Trade and Comparative Advantage by Sugata Marjit & Biswajit Mandal & Noritsugu Nakanishi

Author:Sugata Marjit & Biswajit Mandal & Noritsugu Nakanishi
Language: eng
Format: epub
ISBN: 9789811539060
Publisher: Springer Singapore

(8.10)

Substituting the value of

or

simple mathematical manipulation gives

(8.11)

where

(8.12)

Note that a decline in will surely increase given and .

Following the argument in the previous section it is very convenient to argue that trade will increase in both countries.

We now turn to the growth issue. It is obvious that steady state growth is impossible if does not increase over time. To elaborate the decision making process at the micro level, we invoke the following.

A representative agent is endowed with and , the per capita endowments. He faces the following dynamic choice problem expressed through Bellman’s equation [see Eqs. (8.3) and (8.4)]:

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