A hydrodynamic model for cooperating solidary countries

Roberto De Luca, Marco Di Mauro, Angelo Falzarano and Adele Naddeo

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Abstract: The goal of international trade theories is to explain the exchange of goods and services between different countries, aiming to benefit from it. Albeit the idea is very simple and known since ancient history, smart policy and business strategies need to be implemented by each subject, resulting in a complex as well as not obvious interplay. In order to understand such a complexity, different theories have been developed since the sixteenth century and today new ideas still continue to enter the game. Among them, the so called classical theories are country-based and range from Absolute and Comparative Advantage theories by A. Smith and D. Ricardo to Factor Proportions theory by E. Heckscher and B. Ohlin. In this work we build a simple hydrodynamic model, able to reproduce the main conclusions of Comparative Advantage theory in its simplest setup, i.e. a two-country world with country A and country B exchanging two goods within a genuine exchange-based economy and a trade flow ruled only by market forces. The model is further generalized by introducing money in order to discuss its role in shaping trade patterns. Advantages and drawbacks of the model are also discussed together with perspectives for its improvement.

Date: 2017-07
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Published in Eur. Phys. J. B (2017) 90, 134

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1707.09203

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