LONG-RUN EQUILIBRIA IN A DYNAMIC HECKSCHER-OHLIN MODEL

The goal of this paper is to study long-run equilibria in open economies using a new dynamic Heckscher-Ohlin model with endogenous savings and endogenous labour supply. The long-run equilibrium in this model exhibit the property of economic hysteresis. The model offers a Heckscher-Ohlin type explanation for the long-run trade between countries with identical preferences; that is, a difference in factor endowment ratios in the initial period causes trade to continue in the long run. It is shown that factors other than differences in preferences can lead to a difference in savings rates among countries.