An International Trade Model with Entrepreneurs and Financial Markets

Bodil Olai Hansen, Hans Keiding

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Abstract

We consider a two-period model of a three-country world with free trade in finished products and some factor mobility, where production is subject to uncertainty. Enterpreneurs may establish production in other countries but can obtain financing only in the country of origin. In this model, integrating production across countries, in particular integrating economically strong and weak partners, may give rise to a welfare loss, showing that traditional views on efficiency of international trade must be reconsidered when risk and uncertainty are taken into account.
Original languageEnglish
JournalTechnology and Investment
Volume7
Issue number3
Pages (from-to)96-106
ISSN2150-4059
DOIs
Publication statusPublished - Aug 2016

Keywords

  • International trade
  • Entrepreneurs
  • Pareto Inferior Trade
  • Regional integration

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