The Harrod-Balassa-Samuelson effect and endogenous extensive margins

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Abstract

In the last few decades, the world economy has witnessed the expansion of trade, especially in the number of exchanged varieties, the so-called "extensive margins". In a theoretical model where extensive margins in both tradable and non-tradable sectors are endogenously determined, it is shown that the Harrod-Balassa-Samuelson (HBS) effect is amplified. Following an HBS productivity shock, when countries expand their extensive margins rather than the scale of production, wages appreciate further. Therefore, the expansion in extensive margins leads to a stronger appreciation in the price of non-traded goods. Furthermore, when traded and non-traded goods are complements, the number of firms in the non-traded sector increases despite the appreciation of non-traded goods prices.

Original languageEnglish
Pages (from-to)98-113
Number of pages16
JournalJournal of The Japanese and International Economies
Volume31
DOIs
Publication statusPublished - 2014 Mar
Externally publishedYes

Keywords

  • Extensive margin
  • Firm entry
  • Harrod-Balassa-Samuelson
  • Real exchange rate

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Political Science and International Relations

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