Chapter 10 Specific Factor Models and Dynamics in International Trade

Based on the Jones (1971) model, we construct two dynamic models of international trade in which the rate of time preference is either constant or time-varying. The main purpose is to study whether and under what conditions the results derived in the Jones model still hold in the dynamic framework. It is shown that the results of dynamic models may be similar or different to those obtained in the static model. For example, it is possible that, in both static and dynamic models, an increase in the commodity price raises this commodity's output and the return to the specific factor in this sector. However, the effects on the wage rate may be different due to the factor accumulation impact in the dynamic framework.