In this paper we examine the issue of gains from trade in a
setting which admits urban unemployment and a variety of urban, labour
market conditions. In addition to the conventional criterion, we also
consider the case when the size of the urban unemployed is the sole
determinant of welfare. The results lean heavily on factor market
stability and are sensitive to the commodity being imported and to the
assumption of intersectoral mobility of capital.
This paper analyses the impact of home military spending and foreign military threat on economic growth in a stochastic endogenous growth model involving the supply-side and demand-side effects produced by military spending. The paper states that an increase in home military spending affects economic growth through three channels, including the crowding-out effect, the spin-off effect, and the resource mobilization effect. The net effect which depends on these three channels is ambiguous. Hence, we demonstrate that there exists an optimal defence burden that maximizes the economic growth rate. Furthermore, the optimal defence burden depends on the degree of risk preference. Namely, the optimal defence burden of the risk-loving agent is more than that of the risk-neutral agent, and in turn is more than that of the risk-averse agent. At the same time, we prove that the relationship between the volatility in military spending and economic growth also depends on the degree of risk preference. In addition, we show that greater volatility in foreign military spending leads to a decrease in home aggregate consumption, and hence speeds up economic growth in the home country.
This paper presents an analytical framework to clarify the mechanism through which terms‐of‐trade shocks are transmitted to savings, investment and the current account. By imposing specific preferences to simplify their calculations in the presence of hysteresis, conventional investigations have incorrectly interpreted the macroeconomic effects of terms‐of‐trade disturbances. By concentrating on traded bond denominations and shock persistence, the present analysis reexamines the Harberger–Laursen–Metzler effect and offers new insight. The relevant results provide a rational explanation as to why external price changes lead to a variety of phases of different signs in the evolution of the current account dynamics.
This paper presents a dynamic specific-factors model with money introduced through a cash-in-advance constraint. Two types of consumption goods are produced, and three types of factors-labor, capital, and land-are used. The cash-in-advance constraint is imposed on different sets of goods. When the constraint is imposed exclusive of the investment, inflation affects the pattern (and volume) of trade through a commodity-substitution effect. When the constraint is imposed inclusive of the investment, inflation may affect the pattern of trade through both the commodity-substitution effect and the factor-supply effect. In each case, we examine and prove the dynamic stability property of the steady-state equilibrium.
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