A New Ricardian Model of Trade, Growth and Inequality

The classical Wage Fund (Capital or Credit) framework is integrated with the simplest text-book version of the Ricardian model of comparative advantage, generating a model that replicates important features of the neo-classical production theory involving capital and labour without neo-classical assumptions. Interestingly the growth story of the model seems to be observationally equivalent to the Solow (1956) model of steady state growth. It can easily and effectively reflect on critical contemporary issues without the ammunitions of a more complex neo-classical system. Trade pampers inequality all across the globe independent of trade patterns. It is likely to increase growth rate but that rate declines over time. Technological progress without physical capital accumulation magnifies inequality in or out of steady state, generating a Picketty (2013) like situation. Financial crisis in terms of credit shortage hurts workers but benefits capitalists etc.