Economic growth: Dynamic interactions with international trade and global environment

The thesis comprises four essays that, through theoretical analysis, explore the dynamic impact of capital accumulation on international trade (Chapters 1 and 2) and the dynamic interaction between economic activities and the global climate (Chapters 3 and 4).;Chapter 1 presents a dynamic Heckscher-Ohlin model in which agents' labor supply and investment decisions are endogenous. It is shown that analogues to the major results of the standard Heckscher-Ohlin model are valid in this model. Using the model developed in Chapter 1, Chapter 2 studies the determinant of comparative advantage in the long-run between countries with identical preferences. It is shown that a difference in the initial factor proportions causes trade to continue in the long-run. The country that is relatively capital abundant in the initial period remains relatively capital abundant and exports the relatively capital intensive good while the other country remains relatively labor abundant and exports the relatively labor intensive good in the long-run.;The goal of Chapters 3 and 4 is to offer an economic analysis on the greenhouse effect. Chapter 3 presents a two-sector dynamic model in which the productivity of the agriculture sector depends on weather temperature which in turn is affected by the production activities of the manufacture sector. Competitive equilibria in this model are analysed. Conditions under which the world economy and the global average temperature display a cyclical or chaotic time path are explored. The chapter concludes that the dynamic interaction between a stable natural system and a self-stabilizing market mechanism can, under certain conditions, lead to cyclical or even chaotic behavior. Using a two-country version of the model developed in Chapter 3, Chapter 4 shows that the optimal time path of outputs and temperature will converge to a unique steady state provided that consumers care enough about the future. The equilibrium outcome of a bargaining game where two countries negotiate an agreement on future consumption and production plans for the purpose of combating global warming is derived. It is shown that the agreement between the two countries can be implemented in decentralized economies by a system of taxes and transfers.