Openness to trade as a determinant of the macroeconomic elasticity of substitution |
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Authors: | Marianne Saam |
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Affiliation: | aCentre of European Economic Research (ZEW), P.O. Box 10 34 43, D-68034 Mannheim, Germany |
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Abstract: | Several theoretical and empirical studies on economic growth consider the macroeconomic elasticity of substitution between capital and labor as a measure of economic flexibility that depends on technological as well as institutional aspects. One institutional aspect of economic flexibility is openness to trade. I examine in a Heckscher–Ohlin model with two large countries trading intermediate goods how openness affects the elasticity of substitution. If the technology has a constant elasticity of substitution in a closed economy, opening up to trade raises the elasticity of substitution only in the country that accumulates capital at a faster rate. |
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Keywords: | Macroeconomic elasticity of substitution Economic growth International trade Heckscher– Ohlin model |
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