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- Title
A MODEL OF TRADE IN EXHAUSTIBLE RESOURCES.
- Authors
Djajic, Slobodan
- Abstract
A number of recent studies have examined the dynamics of the pattern and the terms of trade in the international market for an exhaustible resource. What distinguishes the present paper from the earlier contributions is its focus on the role of preferences—particularly the role of time preference and the intertemporal elasticity of substitution—in determining the direction of trade, the equilibrium resource price, and the relative price of present in terms of future consumption goods. With special attention devoted to the demand side of the model, the present study complements the work of Kemp and Long (1980, Chapter 15), who assumed that the rates of time preference are equal across countries, of Dixit (1981), who assumed that resource rents are consumed only in the future while all other factor incomes are consumed at the time they are earned, and of Djajić (1984), who invoked the assumption of linear utility functions. The remainder of the paper is organized as follows. Section 2 develops a simple two-period model of a closed economy. It solves for the equilibrium rate of interest and the corresponding intertemporal pattern of production and consumption. Section 3 extends the model to a world consisting of two countries which may differ in terms of their per-capita resource endowments and rates of time preference. The problem of determining the world rate of interest and the effects of trade on the time profile of production and consumption in the two economies is addressed in this section. Forces which give rise to international trade are analyzed in Section 4. Attention is focused on the manner in which these forces interact to determine the direction of trade both in the present and in the future. The degree of intertemporal consumption substitution is shown to play a decisive role in resolving the question of whether it is international asymmetries in terms of relative factor endowments or rates of time preference which have a greater...
- Subjects
NONRENEWABLE natural resources &; international trade; NONRENEWABLE natural resources; INTERNATIONAL trade; ECONOMETRIC models
- Publication
International Economic Review, 1988, Vol 29, Issue 1, p87
- ISSN
0020-6598
- Publication type
Article
- DOI
10.2307/2526809