Destabilization effect of international trade in a perfect foresight dynamic general equilibrium model (Q2447146)

Using the technique of \textit{J.-M. Grandmont} et al. [J. Econ. Theory 80, No. 1, 14--59 (1998; Zbl 0911.90059)], the authors show that international trade may lead to endogenous cycles. To this end, they consider a two-country model in which the countries differ in their production technologies. This is an inherently non-Heckscher-Ohlin-Samuelson world that, however, can be seen as a representation of east-west or north-south trade patterns. The main result of the paper is that if both capital and goods are mobile between the countries, the two economies can exhibit fluctuations, even if in autarky both countries are saddle point stable. Authors wishing to extend the scope of the paper should consider to what extent labor mobility (i.e. complete integration of the two countries) can lead to an equilibrium that is saddle-path.