Nottingham Centre for Research on
Globalisation and Economic Policy (GEP)

GEP 2020/28: A new Ricardian model of trade, growth and inequality- The role of financial capital

Abstract

The classical Wage Fund (Financial Capital) framework is integrated with the Ricardian model of comparative advantage. It can easily and effectively reflect on critical contemporary issues without the ammunitions of a more complex neoclassical system. Some of the results are as follows. Trade pampers inequality across the globe independent of trade patterns. It is likely to increase growth rate but that rate declines over time. Technological progress without capital accumulation magnifies inequality in or out of steady state. Financiers may wish to invest in innovations and outsource production to the rest of the world. Financial crisis in terms of credit shortage hurts workers but benefits capitalists etc. Interestingly this Ricardian model with capital and labour replicates many iconic neoclassical results without neoclassical assumptions.

 

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Author

Sugata Marjit

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Posted on Thursday 31st December 2020

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