History-dependent paths and trade gains in a small open economy with a public intermediate good

Akihiko Yanase, Makoto Tawada

    Research output: Contribution to journalArticle

    5 Citations (Scopus)

    Abstract

    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.

    Original languageEnglish
    Pages (from-to)303-314
    Number of pages12
    JournalInternational Economic Review
    Volume53
    Issue number1
    DOIs
    Publication statusPublished - 2012 Feb 1

    ASJC Scopus subject areas

    • Economics and Econometrics

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