TITLE:
An International Trade Model with Entrepreneurs and Financial Markets
AUTHORS:
Bodil O. Hansen, Hans Keiding
KEYWORDS:
International Trade, Entrepreneurs, Pareto Inferior Trade, Regional Integration
JOURNAL NAME:
Technology and Investment,
Vol.7 No.3,
August
19,
2016
ABSTRACT: We consider a two-period model of a three-country world with free trade in finished products and some factor mobility, where production is subject to uncertainty. Enterpreneurs may establish production in other countries but can obtain financing only in the country of origin. In this model, integrating production across countries, in particular integrating economically strong and weak partners, may give rise to a welfare loss, showing that traditional views on efficiency of international trade must be reconsidered when risk and uncertainty are taken into account.