Hostname: page-component-586b7cd67f-g8jcs Total loading time: 0 Render date: 2024-11-23T23:01:01.209Z Has data issue: false hasContentIssue false
  • English
  • Français

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]
Get access Rights & Permissions [Opens in a new window]

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

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

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

References

REFERENCES

Acemoglu, Daron, Akcigit, Ufuk, and Kerr, William (2016) Innovation Network. Working paper 22783, National Bureau of Economic Research.CrossRefGoogle Scholar
Acemoglu, Daron and Ventura, Jaume (2002) The world income distribution. Quarterly Journal of Economics 117, 659–694.CrossRefGoogle Scholar
Aghion, Phillipe and Howitt, Peter (1992) A model of growth through creative destruction. Econometrica 60, 323–351.CrossRefGoogle Scholar
Aghion, Phillipe and Howitt, Peter (2005) Growth with quality-improving innovations: an integrated framework. In Aghion, Philippe and Durlauf, Steven (eds.), Handbook of Economic Growth. Amsterdam: North-Holland.Google Scholar
Alvarez, Fernando, Buera, Francisco J., and Lucas, Robert E. Jr., (2012) Idea Flows, Economic Growth, and Trade. Working paper, University of Chicago.CrossRefGoogle Scholar
Ang, James B. and Madsen, Jakob. B. (2011) Can second-generation endogenous growth models explain the productivity trends and knowledge production in the Asian miracle economies? Review of Economics and Statistics 93, 1360–1373.CrossRefGoogle Scholar
Baldwin, Richard E. and Robert-Nicoud, Frederic (2008) Trade and growth with heterogeneous firms. Journal of International Economics 74, 21–34.CrossRefGoogle Scholar
Barro, Robert J. and Sala-I-Martin, Xavier (2004) Economic Growth, 2nd ed.Cambridge, MA: MIT Press.Google Scholar
Bernstein, Jeffrey I. and Nadiri, M. Ishaq (1988) Interindustry R&D spillovers, rates of return, and production in high-tech industries. American Economic Review 78, 429–434.Google Scholar
Bhagwati, Jagdish (1958) Immiserising growth: A geometrical note. Review of Economic Studies 25, 201–205.CrossRefGoogle Scholar
Bhalla, Surjit S. (2002) Imagine There’s No Country: Poverty Inequality and Growth in the Era of Globalization. Washington, DC: Petersen Institute for International Economics.Google Scholar
Bilir, L. Kamran and Morales, Eduardo (2016) The Impact of Innovation in the Multinational Firm. Working paper 22160, National Bureau of Economic Research.CrossRefGoogle Scholar
Broda, Christian and Weinstein, David E. (2010) Product creation and destruction: Evidence and price implications. American Economic Review 100, 691–723.CrossRefGoogle Scholar
Burke, James (1985) The Day the Universe Changed. Boston, MA: Little, Brown and Company.Google Scholar
Clark, Gregory (2007) A Farewell to Alms. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
Coe, David T. and Helpman, Elhanan (1995) International R&D spillovers. European Economic Review 39, 850–887.CrossRefGoogle Scholar
Cohen, Wesley M. (2010) Fifty years of empirical studies of innovative activity and performance. In Hall, Bronwyn H. and Rosenberg, Nathan (eds.), Handbook of the Economics of Innovation. Amsterdam: North-Holland.Google Scholar
Collins, Tracy (2015) Imitation: A catalyst for innovation and endogenous growth. Economic Modelling 51, 299–307.CrossRefGoogle Scholar
Dasgupta, Partha and Stiglitz, Joseph (1980) Industrial structure and the nature of innovative activity. Economic Journal 90, 266–293.CrossRefGoogle Scholar
Diamond, Peter A. (1965) National debt in a neoclassical growth model. American Economic Review 55, 1126–1150.Google Scholar
Dinopoulos, Elias and Thompson, Peter (1998) Schumpeterian growth without scale effects. Journal of Economic Growth 3, 313–335.CrossRefGoogle Scholar
Dinopoulos, Elias and Thompson, Peter (1999) Scale effects in Schumpeterian models of economic growth. Journal of Evolutionary Economics 9, 157–185.CrossRefGoogle Scholar
Dornbusch, Rudiger, Fischer, Stanley, and Samuelson, Paul A. (1977) Comparative advantage, trade, and payments in a Ricardian model with a continuum of goods. American Economic Review 67, 823–839.Google Scholar
Durkin, John T. (1997) Perfect competition and endogenous comparative advantage. Review of International Economics 5, 401–411.CrossRefGoogle Scholar
Eaton, Jonathan and Kortum, Samuel (1999) International technology diffusion: Theory and measurement. International Economic Review 40, 537–570.CrossRefGoogle Scholar
Eaton, Jonathan and Kortum, Samuel (2001) Technology, trade, and growth: A unified framework. European Economic Review 45, 742–755.CrossRefGoogle Scholar
Eaton, Jonathan and Kortum, Samuel (2002) Technology, geography, and trade. Econometrica 70, 1741–1779.CrossRefGoogle Scholar
Eaton, Jonathan and Kortum, Samuel (2012) Putting Ricardo to work. Journal of Economic Perspectives 26, 65–90.CrossRefGoogle Scholar
Feenstra, Robert C. (1996) Trade and uneven growth. Journal of Development Economics 49, 229–256.CrossRefGoogle Scholar
Feyrer, James D. (2008) Convergence by parts. B. E. Journal of Macroeconomics 8 Article 19.CrossRefGoogle Scholar
Fontana, Roberto, Nuvolari, Alessandro, Shimitzu, Hiroshi, and Vezzulli, Andrea (2012) Schumpeterian Patterns of Innovation and the Sources of Breakthrough Inventions: Evidence from a Data-Set of R&D Awards. Working paper 24, Department of Economics, Technical University of Lisbon.CrossRefGoogle Scholar
Forni, Mario and Paba, Sergio (2001) Knowledge Spillovers and the Growth of Local Industries. Discussion paper no. 2934, Center for Economic Policy Research.Google Scholar
Frantzen, Dirk (2000) R&D, human capital and international technology spillovers: A cross-country analysis. Scandinavian Journal of Economics 102, 57–75.CrossRefGoogle Scholar
Garcia-Macia, Daniel, Hsieh, Chang-Tai, and Klenow, Peter J. (2016) How Destructive is Innovation? Working paper 22953, National Bureau of Economic Research.CrossRefGoogle Scholar
Glaeser, Edward L., Kallal, Hedi D., Scheinkman, Jose A., and Shleifer, Andrei (1992) Growth in cities. Journal of Political Economy 100, 1126–1152.Google Scholar
Grossman, Gene and Helpman, Elhanan (1990) Comparative advantage and long-run growth. American Economic Review 80, 796–815Google Scholar
Grossman, Gene and Helpman, Elhanan (1991) Innovation and Growth in the Global Economy. Cambridge, MA: MIT Press.Google Scholar
Ha, Joonkyung and Howitt, Peter (2007) Accounting for trends in productivity and R&D: A Schumpeterian critique of semi-endogenous growth theory. Journal of Money, Credit and Banking 39, 733–774.CrossRefGoogle Scholar
Harrison, Ann E., Martin, Leslie A., and Nataraj, Shanthi (2013) Learning versus stealing: How important are market-share reallocations to India’s productivity growth? World Bank Economic Review 27, 202–228.CrossRefGoogle Scholar
Hines, James R. Jr., (1994) No place like home: Tax incentives and the location of R&D by American multinationals. In Poterba, James (ed.), Tax Policy and the Economy, vol. 8. Cambridge, MA: MIT Press.Google Scholar
Howitt, Peter (1999) Steady endogenous growth with population and R&D inputs growing. Journal of Political Economy 107, 715–730.CrossRefGoogle Scholar
Howitt, Peter and Mayer-Foulkes, David (2005) R&D, implementation, and stagnation: A Schumpeterian theory of convergence clubs. Journal of Money, Credit and Banking 37, 147–177.CrossRefGoogle Scholar
Idson, Todd L. and Oi, Walter Y. (1999) Workers are more productive at larger firms. American Economic Review 89, 104–108.CrossRefGoogle Scholar
Irwin, Douglas A. and Klenow, Peter J. (1994) Learning-by-doing spillovers in the semiconductor industry. Journal of Political Economy 102, 1200–1227.CrossRefGoogle Scholar
Jaffe, Adam B. (1988) Demand and supply influences in R&D intensity and productivity growth. Review of Economics and Statistics 70, 431–437.CrossRefGoogle Scholar
Kane, Robert, Ji, Lei, and Seater, John (2015) TGIF: Trade, Growth, and the Industrial Framework. Working paper, Boston College.Google Scholar
Koymen, Seda and Sayek, Selin (2010) The Role of Human Capital in Productivity Spillovers from FDI: An Empirical Analysis on Turkish Manufacturing Firms. Working paper no. 10-03, Bilkent University.Google Scholar
Krugman, Paul (1979) Increasing returns, monopolistic competition, and international trade. Journal of International Economics 9, 469–479.CrossRefGoogle Scholar
Laincz, Christopher A. and Peretto, Pietro F. (2006) Scale effects in endogenous growth theory: An error of aggregation not specification. Journal of Economic Growth 11, 263–288.CrossRefGoogle Scholar
Lucas, Robert E. Jr., (2008) Ideas and growth. Economica 76, 1–19.CrossRefGoogle Scholar
Maddison, Angus (2001) The World Economy: A Millennial Perspective. Development Centre Studies. Paris: Organization for Economic Cooperation and Development.CrossRefGoogle Scholar
Madsen, Jakob B. (2008) Semi-endogenous growth versus Schumpeterian growth models: Testing the knowledge production function using international data. Journal of Economic Growth 13, 1–26.Google Scholar
Madsen, Jakob B. (2010) The anatomy of growth in the OECD since 1870. Journal of Monetary Economics 57, 753–767.CrossRefGoogle Scholar
Mansfield, Edwin (1968) Industrial Research and Technological Innovation: An Econometric Analysis. New York: W. W. Norton.Google Scholar
Mas-Colell, Andreu, Whinston, Michael D., and Green, Jerry R. (1995) Microeconomic Theory. New York: Oxford University Press.Google Scholar
Melitz, Marc J. (2003) The impact of trade on intra-industry reallocation and aggregate industry productivity. Econometrica 71, 1695–1725.Google Scholar
Nadiri, M. Ishaq (1993) Innovation and Technological Spillovers. Working paper no. 4423, National Bureau of Economic Research.CrossRefGoogle Scholar
Naito, Takumi (2017) An Eaton-Kortum model of trade and growth. Canadian Journal of Economics 50, 456–480.CrossRefGoogle Scholar
National Science Foundation (1989) Science and Engineering Indicators 1989. Arlington: National Science Foundation.Google Scholar
National Science Foundation (2010a) Science and Engineering Indicators 2010. Arlington: National Science Foundation.Google Scholar
National Science Foundation (2010b) Globalization of Science and Engineering Research. Arlington: National Science Foundation.Google Scholar
Organization for Economic Cooperation and Development (2003) The Sources of Economic Growth in OECD Countries. Paris: Organization for Economic Cooperation and Development.Google Scholar
Peretto, Pietro (1996) Sunk costs, market structure, and growth. International Economic Review 37, 895–923.CrossRefGoogle Scholar
Peretto, Pietro (1998a) Variety, spillovers and market structure in a model of endogenous technological change. In Arrow, Kenneth J., Ng, Yew-Kwang, and Yang, Xiaokai (eds.), Increasing Returns and Economic Analysis, pp. 338–366. New York: St. Martin’s Press.CrossRefGoogle Scholar
Peretto, Pietro (1998b) Technological change, market rivalry, and the evolution of the capitalist engine of growth. Journal of Economic Growth 3, 53–80.CrossRefGoogle Scholar
Peretto, Pietro (1998c) Technological change and population growth. Journal of Economic Growth 3, 283–311.CrossRefGoogle Scholar
Peretto, Pietro (1999a) Cost reduction, entry, and the interdependence of market structure and economic growth. Journal of Monetary Economics 43, 173–195.Google Scholar
Peretto, Pietro (1999b) Firm size, rivalry and the extent of the market in endogenous technological change. European Economic Review 43, 1747–1773.CrossRefGoogle Scholar
Peretto, Pietro (2007) Corporate taxes, growth and welfare in a Schumpeterian economy. Journal of Economic Theory 137, 353–382.Google Scholar
Peretto, Pietro (2015) From Smith to Schumpeter: A theory of take-off and convergence to sustained growth. European Economic Review 78, 1–26.CrossRefGoogle Scholar
Peretto, Pietro and Connolly, Michelle (2007) The Manhattan metaphor. Journal of Economic Growth 12, 329–350.CrossRefGoogle Scholar
Perla, Jesse, Tonetti, Christopher, and Waugh, Michael E. (2015) Equilibrium Technology Diffusion, Trade, and Growth. Working paper 20881, National Bureau of Economic Research.CrossRefGoogle Scholar
Quah, Danny (1997) Empirics for growth and distribution: Stratification, polarization, and convergence clubs. Journal of Economic Growth 2, 27–59.Google Scholar
Redding, Stephen (1999) Dynamic comparative advantage and the welfare effects of trade. Oxford Economic Papers 51, 15–39.CrossRefGoogle Scholar
Rivera-Batiz, Luis A. and Romer, Paul M. (1991) Economic integration and endogenous growth. Quarterly Journal of Economics 106, 531–555.CrossRefGoogle Scholar
Rodriguez, Francisco and Rodrik, Dani (2000) Trade policy and economic growth: A skeptic’s guide to the cross-national evidence. NBER Macroeconomics Annual 15, 261–325.CrossRefGoogle Scholar
Romer, Paul M. (1990) Endogenous technological change. Journal of Political Economy 98, S71–S102.CrossRefGoogle Scholar
Sachs, Jeffrey D., Warner, Andrew, Aslund, Anders, and Fischer, Stanley (1995) Economic reform and the process of global integration. Brookings Papers on Economic Activity 1, 1–118.CrossRefGoogle Scholar
Sampson, Thomas (2016) Dynamic selection: An idea flows theory of entry, trade, and growth. Quarterly Journal of Economics 131, 315–380.CrossRefGoogle Scholar
Scherer, F. M. (1984) Innovation and Growth. Cambridge, MA: MIT Press.Google Scholar
Scherngell, Thomas, Manfred, M., Fischer, M., and Reismann, Martin (2007) Total factor productivity effects of interregional knowledge spillovers in manufacturing industries across Europe. Romanian Journal of Regional Science 1, 1–16.Google Scholar
Schumpeter, Joseph A. (1912) Theorie der Wirtschaftlichen Entwicklung. Leipzig: Duncker, & Humboldt.Google Scholar
Schumpeter, Joseph A. (1950) Capitalism, Socialism, and Democracy, 3rd ed.New York: Harper & Row.Google Scholar
Shiozawa, Yoshinori (2007) A new construction of Ricardian trade theory a many-country, many-commodity case with intermediate goods and choice of production techniques. Evolutionary and Institutional Economic Review 3, 141–187.CrossRefGoogle Scholar
Taylor, M. Scott (1993) ‘Quality ladders’ and Ricardian trade. Journal of International Economics 34, 225–243.CrossRefGoogle Scholar
Tirole, Jean (1988) The Theory of Industrial Organization. Cambridge, MA: MIT Press.Google Scholar
US Patent & Trademark Office (2014) Patent Counts by Country, State, and Year – Utility Patents. Available at: http://www.uspto.gov/web/offices/ac/ido/oeip/taf/cst_utl.htmGoogle Scholar
Ventura, Jaume (1997) Growth and interdependence. Quarterly Journal of Economics 112, 57–84.CrossRefGoogle Scholar
World Bank (2016) Research and development expenditure (% of GDP). Available at http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZSGoogle Scholar
Yang, Judy (2012) Large Firms are More Productive, Offer Higher Wages and More Training. Survey note no. 7, report no. 82051, Washington, DC: The World Bank.Google Scholar
Young, Alwyn (1998) Growth without scale effects. Journal of Political Economy 106, 41–63.CrossRefGoogle Scholar