Premium
Optimal Growth and Competitive Equilibrium Business Cycles under Decreasing Returns in Two‐Country Models *
Author(s) -
Nishimura Kazuo,
Venditti Alain,
Yano Makoto
Publication year - 2009
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/j.1467-9396.2009.00830.x
Subject(s) - autarky , economics , business cycle , general equilibrium theory , globalization , capital (architecture) , monetary economics , competitive equilibrium , terms of trade , international economics , macroeconomics , microeconomics , market economy , history , archaeology , welfare
This paper investigates the interlinkage in the business cycles of large‐country economies in a free‐trade equilibrium. We consider a two‐country, two‐good, two‐factor general‐equilibrium model with Cobb–Douglas technologies and linear preferences. We also assume decreasing returns in both sectors. We first identify the determinants of each country's accumulation pattern in autarky equilibrium, and secondly we show how a country's business cycle may spread throughout the world once trade opens. We prove indeed that under free trade, globalization and market integration may generate a contagion of the capital‐exporting country's business cycles and thus have destabilizing effects on the capital‐importing country.