Amitrajeet A. BATABYAL
Department of Economics, Rochester Institute of Technology, 92 Lomb Memorial Drive, Rochester, NY 14623-5604, USA. aabgsh@rit.eduHamid BELADI
Department of Economics, University of Texas at San Antonio, One UTSA Circle, San Antonio, TX 78249-0631, USA. Hamid.Beladi@utsa.eduAbstract
We analyze a model of trade between J heterogeneous regions that are creative in the sense of Richard Florida. There are two non-traded final goods that are used for consumption and investment. There is a continuum of inputs that are freely traded between the creative regions. There is no borrowing or lending between the creative regions. Specifically, we study the impacts of free trade in inputs when the elasticity of substitution between the traded inputs that are used to produce the final consumption and investment goods is less than unity. We first show that creative regions that have lower discount rates will be relatively poor and hence worse off with trade when the above elasticity of substitution is less than one. Next, we explain in detail why this negative result obtains.
Keywords: Creative Capital, Creative Region, Elasticity of Substitution, Input, Trade
JEL classification: R11, F12