Dynamic Patterns of Trade Imbalances

Based on the recursive preference approach, the dynamic and global properties of the two-country open economy are examined with one good and inputs of labor and capital, with capital being freely traded internationally. First by showing that the world’s consumption increases (resp. decreases) with an increase (resp. decrease) in the world’s capital, the global stability of the economy is obtained. Second, the non-monotonicity of consumption between the impatient country 1 and the patient country 2 is established. Third, with the Cobb-Douglas type production function and the country1 ’s technological superiority, the dynamic trade patterns and the asset-debt position are derived. JEL Classification C61, C62, F11 and O41