ABSTRACT
The quantity of labour available in each country is exogenously given, and grows at the same constant rate. There are only two factors of production, capital and labour. The rate of capital accumulation is determined by the amount of output, and imports, of investment goods. The comparative advantage of each country thus varies over time as the process of capital accumulation continues and the terms of trade in turn affect the rate at which capital is accumulated. An excess demand function for investment goods will be derived; the demand for the imports of the consumption good is then easily obtained from the balance of payments equation. The excess demand function relates the demand for the imports of goods by each country at the relative prices prevailing in the world market. The pattern of production and of trade is determined as a result of the interaction of the excess demand curves of both countries.
