A Dynamic Specific-Factors Model of International Trade

41 Pages Posted: 9 Mar 2004 Last revised: 19 Jul 2010

See all articles by Jonathan Eaton

Jonathan Eaton

Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: October 1984

Abstract

In a dynamic economy land and capital serve not only as factors of production but as assets which individuals use to transfer income from workinq periods to retirement. Static models of international trade based on the specific-factors model incorporate only the first of these. Once the second is recognized the supply of capital and evaluation of land can be derived from underlying intertemporal optimization behavior.Changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and the composition of output as they do in the static specific-factors model. Changes in these variables affect both total savings and the amount of savings that is diverted toward investment in land. Results derived from the traditional static model are more likely to emerge when the sector using land as a factor of production has a higher labor share than the sector using capital. In this case the land-using sector dominates factor markets more than asset markets.

Suggested Citation

Eaton, Jonathan, A Dynamic Specific-Factors Model of International Trade (October 1984). NBER Working Paper No. w1479. Available at SSRN: https://ssrn.com/abstract=334298

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