Market imperfection and international trade in a dynamic economy

This paper examines the implications of product market imperfection for a dynamic economy in a two-commodity and two-factor open economy model in which the home country produces a consumption good (capital good) in a perfectly competitive (monopolistic) market. Based on a social utility function of constant elasticity of substitution variety, excess demand for the goods, volume of trade, and patterns of specialization are analyzed vis-a-vis the standard case where the capital-good market is perfectly competitive. Further, it is shown that the presence of imperfect capital-good market structure does not preclude the possibility of long-run steady-state economic growth.