A Two Country Model of Trade with International Borrowing and Lending

Kazumichi Iwasa and Kazuo Nishimura
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Kazumichi Iwasa: Research Institute for Economics and Business Administration, Kobe University, JAPAN

No DP2023-08, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: We investigate the properties of a two-country dynamic Heckscher-Ohlin model that allows international borrowing and lending. As is well known, international trade patterns become undecidable when international borrowing and lending is allowed. To avoid this, we assume a consumable capital good to be nontradable. A key feature of our model is the existence of a continuum of steady state levels of capital stocks, which enables us to examine how the initial amount of physical capital and assets in each country affects the amount of capital and assets in the steady state.

Keywords: Two-country model; International borrowing and lending; Continuum of steady states (search for similar items in EconPapers)
JEL-codes: E13 E21 F11 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2023-03
New Economics Papers: this item is included in nep-des, nep-dge, nep-int and nep-mac
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