A two-country, three-commodity Ricardian trade model with Keynesian unemployment

Conventional trade models either assume full employment or suppose imperfect labor markets and attribute unemployment to the imperfectness. Needless to say, Keynesian unemployment arising from a shortage of effective demand has not been considered. In this paper, our two-country, three-commodity trade model determines patterns of the international division of labor, commodity terms of trade, relative wage rates and employment quantities in each country simultaneously, given the production techniques, labor endowments and effective demand. Furthermore, the model argues the significance of link commodities commonly produced in both countries and quantity adjustments without price changes in the face of demand changes.