Structural change in a Ricardian world economy: The role of extensive rent

Abstract

We study an implication of the Ricardian theory of differential extensive rent in a free trade regime. Tothis effect we develop a Ricardian two country two commodity open economy model. We assume that,unlike labour, land is heterogeneous both within and across countries and that the ratio of high to lowquality land is different among the trading countries. By means of a numerical example we show that asthe process of worldwide capital accumulation (and population growth) proceeds an industrial countrymay find it convenient to increase its domestic corn production and even reverse completely the patternof its imports and exports.