Keywords: global economic growth, elastic labour supply, Oniki–Uzawa model, trade patterns, heterogeneous households, capital accumulation, international trade, growth modelling, economic development, productivity levels, propensity to save
International trade and global growth with capital accumulation, heterogeneous households and elastic labour supply
The purpose of this study is to build a multi–country growth model with endogenous labour supply, capital accumulation and heterogeneous households, basing on the Oniki–Uzawa trade model. We show that the dynamics of the world economy with any number of countries and any number of household types in each country can be expressed by a set of differential equations. We simulate the global economy with three countries and two household types in each country, specifying the production functions with the Cobb–Douglas form. The world dynamics has a unique stable equilibrium point. Our model demonstrates, as Grier and Grier (2007) empirically show, that the global economy exhibits absolute divergence in output levels if some determinants of steady state income are also divergence. As our model allows any number of household types in each country, we can explain some distributional issues in international trade which the traditional neoclassical trade theory fails to explain. We also carry out comparative dynamic analysis with regard to productivity level and propensity to save.