Terms-of-Trade, Factor Intensities and the Current Account in a Life-Cycle Model

Kiminori Matsuyama

The Review of Economic Studies, 1988, vol. 55, issue 2, 247-262

Abstract: This paper examines the effects of terms-of-trade changes on the external adjustment of a small open economy where each consumer has a life-cycle saving function. The supply side of the economy is given by the standard two-sector model with two primary factors: labour and capital. It is shown that, when both commodities are produced, a terms-of-trade deterioration leads to a current account deficit (surplus) if the export (import) sector is more labour intensive.

Date: 1988
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:55:y:1988:i:2:p:247-262.

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