TITLE:
Trade and Development between Similar Economies: Theoretical Modeling and Simulation
AUTHORS:
Joseph Emmanuel Fantcho, Patrick Konin N’Gouan, Nashipu Thalut
KEYWORDS:
Development, Trade, Stationary Equilibrium, Modeling and Simulation
JOURNAL NAME:
Theoretical Economics Letters,
Vol.11 No.6,
December
30,
2021
ABSTRACT: This paper attempts to model
the link between trade and development between countries with similar factor
endowments and proposes a new kind of stable equilibrium in the intermediary
sector of the economies. The data were elicited through simulation using
Microsoft Excel 2010. The results arrived at were archived empirically using
theoretical modeling and simulation. The results derived show that when a
country has monopoly power in the production of intermediate goods, there is a
possibility of gain in trade and exchange, and therefore, it is a win-win
situation for all countries with similar factor endowments, other things being
equal. The results also showed that the profits that emerged in the
intermediate goods sector were positive. The results indicated that profits are
generated from both domestic and foreign demand, especially from the country’s monopoly power in the production of intermediate goods. Lastly, the
study also demonstrated that capital formation and the injection of liquidity
into the regulated economy are efficient, and by assuming that households’
consumption at each point in time is efficient, the control of money supply and
prices were found to be a necessary condition for countries with similar
characteristics to converge towards stationary equilibrium. Based on the
findings, it is recommended that intensification of trade in intermediate goods
is a necessary policy for development policies for CEMAC and ECOWAS, where
monopoly power and the control of money supply and prices are essential for
equilibrated, stable growth.