Trade between Creative Regions When the Input Elasticity of Substitution is Less than Unity

RIT Economics Department Working Paper No. 16-4

21 Pages Posted: 13 Apr 2016

See all articles by Amitrajeet A. Batabyal

Amitrajeet A. Batabyal

Rochester Institute of Technology

Hamid Beladi

University of Texas at San Antonio - College of Business - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 11, 2016

Abstract

We analyze a model of trade between J heterogeneous regions that are creative in the sense of Richard Florida. There are two non-traded final goods that are used for consumption and investment. There is a continuum of inputs that are freely traded between the creative regions. There is no borrowing or lending between the creative regions. Specifically, we study the impacts of free trade in inputs when the elasticity of substitution between the traded inputs that are used to produce the final consumption and investment goods is less than unity. We first show that creative regions that have lower discount rates will be relatively poor and hence worse off with trade when the above elasticity of substitution is less than one. Next, we explain in detail why this negative result obtains.

Keywords: Creative Capital, Creative Region, Elasticity of Substitution, Input, Trade

JEL Classification: R11, F12

Suggested Citation

Batabyal, Amitrajeet A. and Beladi, Hamid, Trade between Creative Regions When the Input Elasticity of Substitution is Less than Unity (April 11, 2016). RIT Economics Department Working Paper No. 16-4, Available at SSRN: https://ssrn.com/abstract=2762747 or http://dx.doi.org/10.2139/ssrn.2762747

Amitrajeet A. Batabyal (Contact Author)

Rochester Institute of Technology ( email )

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Hamid Beladi

University of Texas at San Antonio - College of Business - Department of Economics ( email )

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210-458-7040 (Fax)

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