A Simple Dynamic Specific-Factor Model: Sector-Specific Investment as Joint Production

We develop a simple dynamic specific-factor (SF) model, in which (i) the investment in the specific factor is assumed to be a sector-specific resource-consuming activity conducted by the producer, whose objective is to maximise the intertemporal profit, and (ii) both the production of final good and the investment in the specific factor are subject to joint production. The dynamics of our model is derived solely from the behaviour of the investment function, which is completely separated from the saving behaviour of the household. As a by-product, we can show that the behaviour of our dynamic SF model in the long run is similar to the static Heckscher-Ohlin-Samuelson (HOS) model; our model can be regarded as a dynamic foundation of the HOS model.