The Generalized Neoclassical Growth Model

Abstract

We construct and numerically solve a dynamic Heckscher-Ohlin model which, depending on the distribution of production factors in the world and parameter values, allows for worldwide factor price equalization or complete specialization. We explore the dynamics of the model under different parameter values, and relate our theoretical results to the empirical literature that studies the determinants of countries' income per capita growth and levels. In general, the model is capable of generating predictions in accordance with the most important findings in the empirical growth literature. At the same time, it avoids some of the most serious problems of the (autarkic) neoclassical growth model.

Keywords: International Trade, Hechscher-Ohlin, Economic Growth, Convergence, Simulation

JEL Classification: F1, F4, O4