Chapter 17 Commodity Demand, Capital Mobility, and International Trade: A Ricardian Approach

In this chapter, I explore the impacts of international capital movements on income distribution within countries and the value of trade in goods. Jones (1980) introduces sector-specific capital into a simple Ricardian setting and examines the role of comparative and absolute advantage in determining the allocation of capital between countries. I introduce a simple structure of the demand for commodities into Jones (1980) so that commodity prices are determined endogenously in commodity markets. This extension allows us to show how the pattern of demand plays a crucial role in the effects of capital movements on income distribution and goods trade.