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Status‐Seeking, Catching‐Up, and Comparative Statics in a Dynamic Heckscher–Ohlin Model
Author(s) -
Hu Yunfang,
Shimomura Koji
Publication year - 2007
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2007.00400.x
Subject(s) - comparative statics , economics , saddle point , overtaking , comparative advantage , microeconomics , statics , mathematical economics , saddle , general equilibrium theory , capital (architecture) , capital accumulation , econometrics , neoclassical economics , mathematics , physics , mathematical optimization , classical mechanics , profit (economics) , archaeology , engineering , history , civil engineering , geometry
This paper examines a two‐country dynamic general equilibrium model with status‐seeking agents. We show that the introduction of status‐seeking behavior brings about new properties in equilibrium dynamics. While there exists a continuum of steady states in the standard dynamic models, the present framework demonstrates that, under some conditions, there uniquely exists an incompletely specialized steady state, which is locally saddle‐point stable. Therefore, catching‐up and overtaking phenomena seen in economic development can be explained, and comparative statics analysis also is made possible. Our comparative statics analysis illustrates, for example, that trade pattern is determined in the Heckscher–Ohlin manner; the patient country acts just like a capital abundant one to export the capital‐intensive good. Furthermore, as distinct from the existing literature, the present study shows that the existence of an incompletely specialized steady state can be ensured even if the two countries conduct different policies.