Academic journal article Journal of Economics and Economic Education Research

Demand-Oriented Trade Equilibrium of Multi-National Economies

Academic journal article Journal of Economics and Economic Education Research

Demand-Oriented Trade Equilibrium of Multi-National Economies

Article excerpt

ABSTRACT

This paper proposes a new international trade model, the demand-oriented trade model, to examine the interdependence and interaction of multi-country economies. It reflects realistic considerations in international trade practice: intermediate input, mobile factors across countries, intra-industry trade, and technology differences. The model emphasizes that taste-based internationalized demand plays an important role in the equilibrium of multi-national economies. This paper provides an approach to process demand-oriented trade analysis, which is a weak part in existing trade models. It introduces an account matrix of international trade to explore the production-trade structure of multi-national economies. The study demonstrates that there are five basic equilibriums in international trade and production: the factor resource constraint equilibrium; the intermediate input output equilibrium of production; the equilibrium of final goods transacted from the domestic supply to the internationalized demand; the price equilibrium; and the reciprocal equilibrium between the internationalized demand and the domestic factors. All of them, with reductions, exist both in the Ricardo model and in the Heckscher-Ohlin model. The higher dimension (k factors, n sectors, and m countries) model of this paper is an "uneven number" model, which allow the number of factors to be not equal to the number of commodities. This paper also introduces the matrix of factor content of trade flows and a new measurement for factor abundance based on real imports and exports.

INTRODUCTION

Multi-national economies can be considered as a system of interdependence and interaction processes by trade and factor mobility. A direct interdependence between two countries arises whenever the output or export of one nation becomes an input or import of another.

Both the Ricardo model and the Heckscher-Ohlin model emphasize that the two countries' economies are an integrated production-trade system and on that the economic equilibrium of two countries is the integrated production-trade equilibrium.

The Heckscher-Ohlin model and the Heckscher-Ohlin theorem demonstrated the basis for comparative advantage and the effects that trade had on factor earnings in the two countries. Many efforts have been made to extend the Heckscher-Ohlin model to explain the reality of world trade for the last four decades. There has been considerable progress in the literature on the studies in intermediate goods, mobile factors, intra-industry trade, effects of different technologies, and higher dimension application models. Vanek (1968) proposed a multi-factor and multi-good model, which is often referred to the HOV model. This model has led to a lot of empirical researches (such as Leamer, 1980; Trefler, 1993; 1995). Davis and Weinstein (2001b) estimated technology matrix across the OECD countries and used it to test the HOV equation. Other literatures have studied the influence of public intermediate goods on the fundamental theorem in traditional trade theories (Kahn, 1980; Okamoto, 1985; Altenburg, 1987).

This paper introduces a new international trade model, the demand-oriented trade model. It incorporates intermediate input, factor mobility, intra-industry trade, consumption taste, and technology differences to form an integrated trade model. This paper introduces an account matrix of international trade to describe the trade flows and factor mobility flows in multi-country economies. It illustrates that when trade networks multi-national economies, there are five basic structural equilibriums. The first one is the equilibrium between factor mobility and output with both domestic and international factor mobility. The second is the equilibrium among intermediate input, final goods, and output, which is presented by a traditional Leontief multi-region input-output function. The third is the trade equilibrium of final goods, which depicts the transaction equilibrium from domestic supply to internationalized demand. …

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