**Title**

Trade and Indeterminacy in a Dynamic General Equilibrium Model

**Abstract**

This paper introduces sector-specific externalities in the Heckscher-Ohlin
two-country dynamic general equilibrium model to show that indeterminacy
of the equilibrium path in the would market can occur. Under certain
conditions in terms of factor intensities, there are multiple
equilibrium paths from the same initial distribution of capital
in the world market, and the distribution of capital in the limit
differs among equilibrium paths. One equilibrium path converges
to a long-run equilibrium in which the international ranking of
factor endowment ratios differs from the initial ranking and another
equilibrium path keep the initial ranking and converges to another
long-run equilibrium. Since it is indeterminate which path is
realized, so is the long-run trade pattern. Therefore the Long-Run
Heckscher--Ohlin prediction is vulnerable to the introduction
of externality.

Kazuo NISHIMURA

KIER, Kyoto University

Koji SHIMOMURA

Research Institute for Economics and Business Administration

Kobe University

Rokkodai-cho, Nada-ku, Kobe

657-8501 Japan

Phone: (81) 78 803 7036

Fax: (81) 78 803 7059