A Dynamic Heckscher-Ohlin Model and Inferior Goods

Under the assumption that a pure consumption good is labor intensive, we examined the properties of a two-country dynamic Heckscher-Ohlin model that allows for preferences to be non-homothetic (Bond et al. (2009)). In this paper, we assume that a pure consumption good is capital intensive and study the properties of the model. If both goods are normal, each country will have a unique autarkic steady state, and all steady state equilibria are saddle points. We also consider the case in which one good is inferior, and show that this can lead to multiple autarkic steady states and the possibility of inderminacy under free trade as in Bond et al. (2009).