A long run model for a small open economy with trade in goods and finantial assets and emigration: a two period approach

Abstract

The present paper deals with a full range of international economic relations with the rest of the world (r.o.w.) for a small open economy, in the context of an intertemporal optimizing model. Its main purpose is to analyse how trade in goods and financial assets, labor migrations and the basic intertemporal types of behavior {savings and investment) interact in the response to some long run shocks. A by-product of the present paper is then an evaluation of the consequences of the liberalization of international movements in labor, capital and goods. The paper is organized as follows. Section 2 sets the main behavioral functions of the model. In Section 3 local comparative statics analyses are made. It is divide into two broad subsections: the first deals with emigration when there is free trade in goods and capital and the second deals with both capital controls and tariffs in the non-emigration case. Section 4 closes the paper.