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Growth-Led Exports: Implications for the Cross-Country Effects of Shocks to Potential Output

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Author Info
Joseph Gagnon (Federal Reserve Board)
Abstract

Fast-growing countries tend to experience rapid export growth with little secular change in their terms of trade. This contradicts most international macroeconomic models, which predict that productivity and labor-supply shocks can affect exports only through changes in the terms of trade. This paper generalizes the monopolistic competition trade model of Helpman and Krugman (1985), providing a basis for growth-led exports without declining terms of trade. The key mechanism behind this result is that fast-growing countries are able to develop new varieties of products that can be exported without pushing down the prices of existing products. There is strong support for the new model in the long-run export growth of many countries in the post-war era. These results have major implications for the analysis of supply shocks in international macroeconomic models.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Contributions to Macroeconomics.

Volume (Year): 8 (2008)
Issue (Month): 1 ()
Pages: 1579-1579
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Handle: RePEc:bep:maccon:v:8:y:2008:i:1:p:1579-1579

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Related research
Keywords: international trade macroeconomic model product variety

Find related papers by JEL classification:
F1 - International Economics - - Trade

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  3. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February. [Downloadable!] (restricted)
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  7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  8. Joseph E. Gagnon, 2007. "Productive Capacity, Product Varieties, and the Elasticities Approach to the Trade Balance," Review of International Economics, Blackwell Publishing, vol. 15(4), pages 639-659, 09. [Downloadable!] (restricted)
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  10. Laurence Le Fouler & Wim Suyker & Dave Turner, 2001. "Trade Linkages and the Trade Matrices in the OECD Interlink Model," OECD Economics Department Working Papers 310, OECD Economics Department. [Downloadable!]
  11. Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2005. "SIGMA: a new open economy model for policy analysis," International Finance Discussion Papers 835, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  12. Daron Acemoglu & Jaume Ventura, 2002. "The World Income Distribution," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 659-694, May. [Downloadable!] (restricted)
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  13. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March. [Downloadable!]
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