'" E t: (4) and aggregate world demand for a variety produced in country i, given by i X r (pi (E A E B ) =nA(pAr-<+nB(pBr-& + , (5) where the fact has been used that, as will tum out when looking at the production side, all varieties in country i are equally priced.
Under the assumption of identical interest rates in both countries, due to either free international mobility of financial capital or identical discount factors of the representative consumer in both countries. That's why they can suggest that "factor price equalization obtains as a long-run proposition in any steady state in which both countries are incompletely specialized" (Grossman and Helpman, 1991a, p. 183). , 1 This chapter follows closely Walde (1994b). We define a balanced growth path as a solution of a dynamic model where some variables grow at a constant rate (Grossman and Helpman call such a solution a steady state).