Optimal growth and competitive equilibrium business cycles under decreasing returns in two-country models

Alain Venditti (1) , Kazuo Nishimura (2) , Makoto Yano (2)

1 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
2 Kyoto University

This paper investigates the interlinkage in the business cycles of large-country economies in a free-trade equilibrium. We consider a two-country, two-good, two-factor general equilibrium model with
Cobb-Douglas technologies and linear preferences. We also assume decreasing returns in both sectors. We first identify the determinants of each country's accumulation pattern in autarky equilibrium, and second we show how a country's business cycle may spread throughout the world once trade opens. We prove indeed that under free-trade, globalization and market integration may generate a contagion of the capital exporting country's business cycles and thus have destabilizing effects on the capital importing country.

Mots clés: Two-country general equilibrium model; busines cycles; capital intensities; decreasing returns

Domaines: Economies et finances

Alain Venditti, Kazuo Nishimura, Makoto Yano. Optimal growth and competitive equilibrium business cycles under decreasing returns in two-country models. 2008. ⟨halshs-00280528⟩