The paper presents a dynamic general equilibrium model of a small open economy which employs an essential imported input in production. The economy is said to be capable of survival, if, given the technology and the time-path of world prices, there is at least one sequence of feasible decisions on intertemporal resource allocation sustaining a positive stationary level of consumption indefinitely. The principal results of the paper characterize necessary and sufficient conditions on the technology and the rate of decline of the terms of trade that ensure survival.
ASJC Scopus subject areas
- Economics and Econometrics