Factor Accumulation and Trade: Dynamic Comparative Advantage with Endogenous Physical and Human Capital*

Abstract

This article develops a two-country endogenous growth model with accumulation of both physical and human capital. We establish the existence of two-country balanced growth equilibria with physical and human capital in which a static and dynamic version of the Heckscher-Ohlin (HO) hypothesis hold true. We also show the existence of unbalanced growth equilibria in which the static and dynamic HO hypotheses can be violated. The multiplicity of paths with international trade emerge as a result of the intertemporal no-arbitrage condition when factor prices are equalized across countries.

A generalized multi-country endogenous growth model

“…Since one of the equations can be derived from the other ones, the system contains as many independent equations as unknowns. An important property of the equilibrium is pointed out by Bond et al (2003Bond et al ( , p. 1046: because of constant returns in the education technology (8), even if the aggregate investment in human capital in general equilibrium is determinate, the individual investments in human capital are not (see Appendix A: Integrated equilibrium).…”

“…7), different factor intensities in the production of consumption and investment goods (cf. Stiglitz 1970, andBond et al 2003), or intermediate goods with different factor intensities (cf. Ventura 1997 andCuñat andMaffezzoli 2004).…”

“…Interestingly for our purposes, Smith (1984) takes the steady-state assumption as the distinguishing feature of one of two classes of models and warns: "let us be wary of steady-state analysis" (Smith 1984, p. 290). accumulation by Bond et al (2003). 6 It is the theoretical backbone of Ventura's 2005 authoritative survey of growth and trade.…”

Trade and Divergence in Education Systems

“…In another strand of literature, researchers study how trade may affect human capital formulation, taking the education system as given. This includes, for example, Findlay and Kierzkowski (1983), and Bond et al (2003). This line of work thus assumes away the possibility to change the humancapital production function via education policies.…”

Distortions in Two Sector Dynamic Models with Incomplete Specialization

“…2 For example, Lucas (1988) and Bond, Wang, and Yip (1996) examine a closed economy model with physical and human capital accumulation, Bond, Trask and Wang (2003) analyse the open economy case, and Milesi-Ferreti and Roubini (1998) study the effects of factor taxation in a closed economy.…”