Cross-generation and Cross-country Evidence on Productive Factors’ Virtual Movements

Abstract

A qualitative evaluation of the decreasing of abundant factor and the increasing of scarce one in HO model is to consider the movements’ effects of the Production Possibilities Frontier (PPF). Using Agent-based Modelling (ABM) and for regressions, we will use the maximum likelihood method on panel data. The number of observations for the sample at 108 countries is 3240 and 630 for the sample of 25 developed countries, I find growth volatility in the cross-country and cross-generation’s evidence is due to PPF disturbance. This disturbance shall depend on the assumption that economic agents in a given nation or generation can commit more or less serious miss-choices, which they can then repent of. But these miss-choices affect production and consumption more or less considerably, in terms of purchasing or production rights. However, the great global community’s tendency to return to right choices, ensures a serendipitous equilibrium in a context of overlapping generations and nations. There is an auto-errors correction between old and young (living and dead generations and between old and young countries) ensuring a permanent equilibrium in the economy, so that the continuous movements of the PPF are not perceptible (nominal growth volatility). Therefore, the sustainable growth generated by this continuum of opposing shock-vectors of equal intensity, i.e. an exchange of positive externalities for negative externalities between generations and countries, is the normal state of any economy. Because, shocks on PPF have two origins: external(from other generations or nations) and internal (current generation or the same country), the integration of the  two conflicting mechanisms for endogenous technological change, eliminates growth volatility. This result confirms at a high level, the Hecksher-Ohlin-Edgeweblime hypothesis that scarce factors are indirectly imported (increasing) and abundant factors exported (decreasing) through the exchange of final goods, and that, the scarce final good in a generation is indirectly imported (increasing) and the abundant final good in a given generation is indirectly exported(decreasing) through the exchange of factors between generations of a given country.