Foreign Trade and Equilibrium Indeterminacy

Luís Aguiar-Conraria () and Yi Wen

Working Papers from Cornell University, Center for Analytic Economics

Abstract: We show that dependence of production on foreign inputs (or non-producible natural resources) can significantly increase the likelihood of indeterminacy. Payment of imported foreign factors of production may act as a semi-fixed cost, amplifying production externalities and returns to scale, making self-fulfilling expectations driven busyness cycles easier to arise. This is demonstrated using a standard neoclassical growth model. Calibration exercise shows that the required increasing returns to scale can be reduced by as much as 64% based on estimated share of foreign inputs in production for OECD countries.

JEL-codes: E13 E20 E30 (search for similar items in EconPapers)
Date: 2004-05
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Foreign trade and equilibrium indeterminacy (2005)
Working Paper: Foreign Trade and Equilibrium Indeterminacy (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:corcae:04-09

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