Trade imbalance in an input-output model (Q1110440)

We propose an input-output model for two countries, that covers the trade flows between these countries. We show that when surpluses and/or shortages emerge in the production processes, these can be adjusted by changing the production level. In general, it is possible for the two countries to satisfy each others needs exactly. The model is set up for the case where both countries export to and import from each other. It consists of a quantity and a price side. Conditions for strictly positive solutions are given. Trade imbalance emerges when we consider unilateral trade, development aid is covered by the model also.