An Extended Goodwin Model with Horizontal Trade: A Sheaf Theoretic Approach

Abstract

The Goodwin model of endogenous growth looks to study the dynamic interaction between employment rate and worker's share of national income in an economy. The model is simplistically and elegantly described by a set of differential equations that predicts cyclic behavior between the two variables in an economy. While this model is simplistic, and most likely does not accurately represent reality, the mathematical modeling of cyclic behavior is attractive to economists. Cycles are at the heart of many macroeconomic theories and a mathematical model allows for future predictions to be made. Thus, over the years, it has been updated and extended. Ishiyama (2001) takes one such approach at updating the Goodwin model. He considers two countries engaged in horizontal trade. Through the lens of sheaf theory, this paper describes Ishiyama's complex model through various dependency diagrams. Sheaves allow us to encode all information reflected in the equations of the model into a dependency diagram, yielding a visual representation of the variable relationship structure. These dependency diagrams are powerful, and much of the analysis typically done on equations can be done on the diagrams themselves. Further, these dependency diagrams allow for a new way to consider complex models, such as Ishiyama's model. More specifically, it also allows us to analyze his system in a way not previously done. New questions regarding local sections of this sheaf and their possible extensions to global sections are considered. These questions lend themselves to unique analysis about the system. They also provide a practical way to check the accuracy of Ishiyama's model, which has many obvious benefits. It is meaningful to conduct this approach to a system of equations given its novelty, its applicability, and its importance for modeling.