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THE DANCE OF THE DYNAMICS: THE INTERPLAY OF TRADE AND GROWTH

Published online by Cambridge University Press:  23 August 2018

Lei Ji  and
John J. Seater
Lei Ji
Affiliation:
Sam Houston State University
John J. Seater*
Affiliation:
Boston College
*
Address correspondence to: John J. Seater, 4 Bartlett Place, Walpole, MA 02081, USA; e-mail: [email protected]
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Abstract

We study the interaction between endogenous growth and Ricardian trade working solely through comparative advantage. The model is built on several facts about research and development and trade. Trade and growth affect each other in ways previously unexplored. The model can explain and reconcile in a single framework several phenomena usually analyzed separately. Because of a possible dynamic inefficiency, trade may raise or lower the growth rate of each trading partner. Trade leads to “effective technology transfer,” with the growth rate looking as if a country adopts its partner’s technology even though it does not. Economic growth can endogenously change the trading regime from incomplete to complete specialization (the Ricardian corner and interior, respectively), which can explain why trade helps some countries catch up but leaves others behind. Trade may raise or lower social welfare. The model specifies the conditions under which each possible outcome occurs. We examine a few of the model’s many testable implications and find them in agreement with the data.

Keywords

Endogenous GrowthInternational TradeComparative Advantage
Type
Articles
Information
Macroeconomic Dynamics , Volume 24 , Issue 3 , April 2020 , pp. 479 - 537
Copyright
© Cambridge University Press 2018

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Footnotes

We thank Pietro Peretto, Robert Kane, participants at several seminars, workshops, and conferences, and two outstanding referees for helpful comments.

References

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