Entrepreneurship, knowledge and employment

Capital Accumulation and the Direction of Trade in a Ricardian Two-Country Model of International Trade

Neri Salvadori, University of Pisa
Freni Giuseppe, University of Naples Parthenope
Signorino Rodolfo, University of Palermo

We study an implication of the Ricardian theory of differential extensive rent in a free trade regime. To this effect we develop a Ricardian two country two commodity open economy model. We assume that, unlike labour, land is heterogeneous both within and across countries and that the ratio of high to low quality land is different among the trading countries. By means of a numerical example we show that as the process of worldwide capital accumulation proceeds an industrial country may find it convenient to increase its domestic corn production and even reverse completely the pattern of its imports and exports.

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Keywords: capital accumulation, international trade, structural change, Ricardian economics, Heckscher-Ohlin model

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