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HISTORY‐DEPENDENT PATHS AND TRADE GAINS IN A SMALL OPEN ECONOMY WITH A PUBLIC INTERMEDIATE GOOD *
Author(s) -
Yanase Akihiko,
Tawada Makoto
Publication year - 2012
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2011.00681.x
Subject(s) - economics , small open economy , endowment , open economy , productivity , point (geometry) , terms of trade , stock (firearms) , public good , economy , macroeconomics , microeconomics , exchange rate , mechanical engineering , philosophy , geometry , mathematics , epistemology , engineering
This study reexamines McMillan's ( International Economic Review 19 (1978), 665–78) analysis of a dynamic small open economy with a public intermediate good. Concerning the trade patterns of the open economy, we find results that were overlooked in McMillan's analysis. Among others, if labor endowment is of intermediate size, there are two saddle‐point steady states, and the initial stock of the public good determines the long‐run trade pattern. We also add a gains‐from‐trade analysis to McMillan's model and demonstrate that if the economy has a comparative advantage in a good with productivity less sensitive to the public intermediate good, the economy may lose from trade at the steady state.