Abstract

This thesis investigates the behavior of a dependent economy within a dynamic two-sector, two-factor model. The economy produces a traded good and non-traded structures used as housing or as productive factors. In contrast to the existing literature, the structures are non-consumable. We analyze the impact of different shocks on the economy. We find that positive and whealth-enhancing shocks almost always lead to an increase in the capital stock and to a deterioration of the current account. This result holds irrespectively of relative sectoral intensities. It is not restricted to cases where the non-traded sector is more capital intensive, which is the standard result in the literature with consumable non-traded goods. Our model provides a framework to explain the behavior of real estate markets and current accounts in South East Asian countries hit by the crisis in 1997 as well as in economies benefiting from foreign transfers such as Ireland

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