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Dynamic Stability, Paradoxical Comparative Statics, and Factor–Market Distortions in an Economy with Three Production Sectors
Author(s) -
Kemp Murray C.,
Yamada Masatoshi
Publication year - 2003
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00366
Subject(s) - economics , comparative statics , production (economics) , stability (learning theory) , general equilibrium theory , small open economy , factor market , partial equilibrium , factors of production , dynamic equilibrium , economy , microeconomics , keynesian economics , macroeconomics , thermodynamics , monetary policy , physics , machine learning , computer science
In an earlier paper the authors clarified the relationship between the stability of long–run equilibrium and the possibility of paradoxical comparative statics in the Lerner–Samuelson two–by–two model of production with factor–market distortions (see Review of International Economics 9 (1901) :383–400). The present paper extends the analysis to an economy with three production sectors. It is found that almost all properties of long–run equilibrium in the two–by–two model with factor–market distortions continue to hold, while some new properties, such as plurality of equilibrium, appear. Specifically, the instability of the adjustment process is not ruled out; a paradox cannot coexist with stable equilibrium in a small open economy, but may do so in a closed economy.