The Dependent-Economy Model with Both Traded and Nontraded Capital Goods

Philip L Brock and Stephen J Turnovsky

Review of International Economics, 1994, vol. 2, issue 3, 306-25

Abstract: Dynamic versions of the dependent-economy model have been criticized for arbitrarily assuming that capital is either tradable or nontradable, and for choosing either the traded or nontraded sector to be capital intensive. Our model incorporates both types of capital and shows that the relative sectoral intensity of nontraded capital determines the dynamic adjustment of the relative price of nontradables. When the traded sector is intensive in nontraded capital, the saddlepath is flat. When the nontraded sector is intensive in nontraded capital, the saddlepath is negatively sloped. The relative sectoral intensity of traded capital primarily affects current-account dynamics. Copyright 1994 by Blackwell Publishing Ltd.

Date: 1994
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Working Paper: The Dependent Economy Model with Both Traded and Non-Traded Capital Goods (1993)
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