On Long Run Trade Imbalance

• Main Author: Gale,David
• Other Authors: CALIFORNIA UNIV BERKELEY OPERATIONS RESEARCH CENTER
• Format: Text
• Language: English
• Published: 1972
• Subjects: Economics and Cost Analysis; Operations Research; (*COMMERCE; EQUILIBRIUM(PHYSIOLOGY)); ECONOMICS; PRODUCTION; MATHEMATICAL MODELS; GROWTH(PHYSIOLOGY); THEOREMS; MONEY; BALANCE OF PAYMENTS; PRODUCTION FUNCTIONS; GROWTH(GENERAL); MODELS; *INTERNATIONAL TRADE; ECONOMIC ANALYSIS; Antarc*
• Online Access: http://www.dtic.mil/docs/citations/AD0754416; http://oai.dtic.mil/oai/oai?&verb=getRecord&metadataPrefix=html&identifier=AD0754416

The purpose of this paper is to demonstrate a property of free trade equilibrium between countries; namely, that the market mechanism will not, except under very special circumstances, bring about a balance of trade in any country either in the short or long run. To illustrate this two simple models are analyzed, first the neo-classical growth model introduced by Solow and second a pure exchange model of Samuelson. In each case the author shows that when several countries engage in trade the models possess unique world steady states equilibria which are stable and in which every country is either permanent net importer or permanent net exporter and only by coincidence will any country have a balance of trade. As a record result it is shown that this state of imbalance is not disadvantageous to any of the trading countries in the sense that they are better off in the world steady state than they would be in the steady state they would have achieved under antarchy. (Author)