Endogenous growth and trade liberalization between asymmetric countries
AbstractThe paper presents a general equilibrium model of endogenous growth and trade between two countries, an advanced country (A) and a backward country (B). The development stage is summarized by the level of knowledge stock accumulated through R&D investments. The latter generates technological progress that intermediate goods producing firms, operating under increasing returns to scale and monopolistic competition, perform to obtain process innovations (reduction of production costs) when they are incumbents, or product innovations if they are new entrants. The model shows that convergence in long-run growth rates can be obtained even in absence of international technology spillover, in which case, under the assumption of no variety overlap, the gain from trade will be only static. Dynamic effects will be delivered instead in presence of an initial overlap in the varieties produced in the two countries, together with a wide gap in unit production costs. In this case it is shown that the impact of trade liberalization on firms profits might generate a cumulative causation process which may lead to a polarization of innovative productions in the advanced country.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 630.
Date of creation: Jun 2007
Date of revision:
endogenous growth; trade liberalization; scale effect.;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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