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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 29, No. 2, pp.235-268
ISSN: 1225-0279 (Print)
Print publication date 30 May 2016
Received 08 Oct 2015 Revised 21 Jan 2016 Accepted 21 Jan 2016

Austrian Model of Trade and Growth of a Developing Economy

Shin-Haing Kim
Professor Emeritus of Economics, Department of Economics, Seoul National University, Seoul, Tel: +82-10-8139-6388 shk@snu.ac.kr

JEL Classification: F43, O33, O40

Abstract

This paper develops a model of trade and growth for a developing economy based on the Austrian theory of capital. Two types of economies differ in terms of time preference rates. Each economy produces two capital goods, both of which provide services to consumers through their life periods. A human capital intensive capital good is produced by a relatively more roundabout method than less human capital intensive one. An economy with a low time preference rate exports a human capital intensive capital good to a high time preference rate economy. By importing a human capital intensive capital good and investing for a low vintage level of domestic human capital to the high vintage of the imported capital good, the growth rate of the high time preference rate economy increases. Another aspect of the Austrian trade model is to interpret the export of the consumer goods of a developing economy as the export of the domestic savings to finance the import of the capital good from the advanced economy. Trade contributes to the growth of the developing economy. Thus, the Austrian trade model exhibits the financial side of trade in the early stage of development.

Keywords:

Trade, Growth, Capital gains, Austrian capital theory

Acknowledgments

I appreciate the referee’s detailed and helpful comments, which considerably improved the original version of the paper.

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