NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Dynamic Specific-Factors Model of International Trade

Jonathan Eaton

NBER Working Paper No. 1479 (Also Reprint No. r0904)
Issued in August 1987
NBER Program(s):   ITI   IFM

In a dynamic economy land and capital serve not only as factors of production but as assets which individuals use to transfer income from workinq periods to retirement. Static models of international trade based on the specific-factors model incorporate only the first of these. Once the second is recognized the supply of capital and evaluation of land can be derived from underlying intertemporal optimization behavior.Changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and the composition of output as they do in the static specific-factors model. Changes in these variables affect both total savings and the amount of savings that is diverted toward investment in land. Results derived from the traditional static model are more likely to emerge when the sector using land as a factor of production has a higher labor share than the sector using capital. In this case the land-using sector dominates factor markets more than asset markets.

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Document Object Identifier (DOI): 10.3386/w1479

Published: Eaton, Jonathan. "A Dynamic Specifif-Factors Model of International Trade," Review of Economic Studies, Vol. LIV(2), No. 178, (April 1987), pp. 325-33 8.

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