Specialization and Dynamics in a Trade Model*

Abstract

An economy which can produce two tradeable goods, and an investment good which augments capital stocks, is shown to specialize in an optimal stationary state unless it is in the interior of a continuum from which no change is ever needed. On the traverse to a stationary state, non‐specialization occurs if at all for only a finite time. Although the instantaneous production frontier is concave, the long‐run frontier is linear, but the long‐run rate of product transformation differs from the supply price ratio with positive time‐preference. Long‐run specialization may differ from that predicted by long‐run comparative advantage.

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