Essays on international trade and factor mobility in the presence of a public input

Governments spend large sums of monies on various services provided to both firms and households. However, most open economy studies do not take government spending on industries into account. The present study deals exclusively with government spending on industries. This spending is incorporated into neoclassical production functions in terms of a public input. The purpose of this thesis is three fold: (i) to investigate the impact of terms of- trade changes in a small public input economy;(ii)to explore the international transmission of government spending on public inputs; and (iii) to examine the relationship between government spending on public inputs and the pattern of international trade. The thesis consists of three essays. In a three-period setting, the first essay examines the impact of terms-of-trade changes on the allocation of resources in a small open economy. The private sector of the economy produces two final goods by means of private inputs and a public input. The public input is produced by the public sector. The allocation of resources between the private and public sectors is endogenous and the public input is supplied with a lag of one period. The essay demonstrates that the timing of terms-of-trade changes is critical. The impact of terms-of-trade changes in the presence of labour unemployment is also considered. The second essay develops a two-country, one-good, and two factor general equilibrium model with a pure public input and international factor mobility. International transmission of government spending on a pure public input and the implications of potential international coordination are investigated in the short-run and the long-run. The essay also considers the international transmission of government spending on a pure public input in the context of a three-country model where two countries have formed an economic union. The third essay develops a two-country, two-good, and two factor general equilibrium model with a congestible public input. The model is used to investigate the relationship between government spending on a congestible public input and the pattern of international trade.Arts, Faculty ofVancouver School of EconomicsGraduat