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International trade with endogenous technological change

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  • Rivera-Batiz, Luis A.
  • Romer, Paul M.

Abstract

To explain why trade restrictions sometimes speed up worldwide growth and sometimes slow it down, we exploit an analogy with the theory of consumer behavior. substitution effects make demand curves slope down, but income effects can increase or decrease the slope, and can sometimes overwhelm the substitution effect. We decompose changes in the worldwide growth rate into two effects (integration and redundancy) that unambiguously slow down growth, and a third effect (allocation) that can either speed it up or slow it down. We study two types of trade restrictions to illustrate the use of this decomposition. The first is across the board restrictions on traded goods in an otherwise perfect market. The second is selective protection of knowledge-intensive goods in a world with imperfect intellectual property rights. In both examples, we show that for trade between similar regions such as Europe and North America, the first two effects dominate; starting from free trade, restrictions unambiguously reduce worldwide growth.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 35 (1991)
Issue (Month): 4 (May)
Pages: 971-1001

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Handle: RePEc:eee:eecrev:v:35:y:1991:i:4:p:971-1001

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References

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  1. Dinopoulos, Elias & Oehmke, James F. & Segerstrom, Paul S., 1993. "High-technology-industry trade and investment : The role of factor endowments," Journal of International Economics, Elsevier, vol. 34(1-2), pages 49-71, February.
  2. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-91, December.
  3. Luis A. Rivera-Batiz & Paul M. Romer, 1990. "Economic Integration and Endogenous Growth," NBER Working Papers 3528, National Bureau of Economic Research, Inc.
  4. Paul Romer, 1991. "Are Nonconvexities Important For Understanding Growth?," NBER Working Papers 3271, National Bureau of Economic Research, Inc.
  5. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  6. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  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.
  8. Grossman, G.M. & Helpman, E., 1989. "Growth And Welfare In A Small Open Economy," Papers 15-89, Tel Aviv.
  9. Feenstra, R.C., 1990. "Trade And Uneven Growth," Papers 353, California Davis - Institute of Governmental Affairs.
  10. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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