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General Trade Equilibrium of Integrated World Economy

Guo, Baoping (2015): General Trade Equilibrium of Integrated World Economy.

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Abstract

The general trade equilibrium is one of the most critical topics in international economics. This paper curries three related studies. The first one is to present Dixit and Norman’s integrated world equilibrium (IWE) analytically by introducing a Dixit-Norman constant, which shows the structure of equalized factor prices. The second is to use the trade volume, defined with domestic factor endowments proposed by Helpman and Krugman (1985), to expose price-trade equilibrium. The optimality property of the equilibrium is that the trade volume reaches its maximum value. The last one displays the measurement of autarky prices and gains from trade. It illustrates that, if two countries have the same technologies, free trade distributes gains from trade evenly to trade partners.

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