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Trade, redistribution and indeterminacy

Ghiglino, Christian (2007) 'Trade, redistribution and indeterminacy.' Journal of Mathematical Economics, 43 (3-4). pp. 365-389. ISSN 0304-4068

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In the present paper a tractable two-sector growth model with technological externalities and many countries is considered. It is shown that the occurrence of indeterminacy, a typical side-product of externalities, may appear due to the enlargement of the markets for goods and factors. Various scenarios of progressive levels of integration are considered. In particular, it is found that the integration into a common market on which countries trade the produced good and the inputs may lead to indeterminacy even when the equilibrium under full autarchy is determinate. A similar result holds when integration only affects consumption and capital goods. However, such result does not occur if the inverse of relative risk aversion is a linear or concave function. We conclude that in many usual situations, as the one with CES preferences, indeterminacy and the associated fragility of expectations and financial instability, is not likely to be increased by market integration. © 2006 Elsevier B.V. All rights reserved.

Item Type: Article
Uncontrolled Keywords: economic growth; externalities; general equilibrium; indeterminacy; trade; market integration; common market
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 16 Jul 2012 20:22
Last Modified: 15 Jan 2022 00:40

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