The Impact of Imported Energy and Goods Prices on Growth and Trade Balance of a Small Open Economy

This study builds a growth model of a small open economy with imported energy and goods in a perfectly competitive economy. The economy is composed of one industrial sector and one service sector. The economy is endowed with constant labor and land. The growth mechanism is basically neoclassical in the sense that the main determinant of growth is endogenous wealth. This study is mainly concerned with the effects of changes in capital cost, energy price and price of imported goods on trade balance, price of services, land rent, and path of economic growth. The comparative dynamic analysis provides some insights into the impact of exogenous shocks on the national economy.