International Trade and Investment under Different Rates of Time Preference

Kyoji Fukao and Koichi Hamada

No 3457, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper attempts to integrate the theory of trade with that of capital movements, and to study the two country world where each nation has a different rate of time preference. It resolves the indeterminacy problem intrinsic in the Heckscher-Ohlin model where trade and factor movements coexist by assuming that capital movements are infinitesimally more costly than trade in goods. Under certain assumptions, one can dichotomize the behavior of asset accumulation from the dynamic pattern of trade specialization. Complete specialization will take place most; likely in the country with a higher rate of time preference, which specializes into the more labor intensive sector. It is shown that a single-commodity model does exaggerate the amount of capital movements, but that the qualitative nature of asset accumulation patterns obtained in a single-commodity model of capital movements holds intact in the model that incorporates trade. This paper offers another explanation to the Feldstein-Horioka paradox that domestic investment responds more closely to increasing savings than capital outflows do. If an economy is imperfectly specialized, increased savings will be absorbed in capital deepening rather than in capital outflow.

Date: 1990-10
Note: ITI IFM
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published as Journal of Japanese and International Economies, Vol. 8, no. 1 (March 1994): 22-52.
Published as Fukao Kyoji & Hamada Koichi, 1994. "International Trade and Investment under Different Rates of Time Preference," Journal of the Japanese and International Economies, Elsevier, vol. 8(1), pages 22-52, March.

Downloads: (external link)
http://www.nber.org/papers/w3457.pdf (application/pdf)

Related works:
Journal Article: International Trade and Investment under Different Rates of Time Preference (1994)
Working Paper: INTERNATIONAL TRADE AND INVESTMENT UNDER DIFFERENT RATES OF TIME PREFERENCE (1990)
Working Paper: International Trade and Investment under Different Rates of Time Preference (1990)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:3457

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w3457

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().