What is the impact of movement towards free trade on output? Can this impact permanently affect output levels, and more importantly, will it have an impact on steady-state growth rates? This paper provides empirical evidence showing how countries have exhibited substantial increases in their growth rates over the past century while concurrently increasing the extent of their trade. The model developed here emphasizes the role that knowledge spillovers emanating from heightened trade can have on long-run growth rates. Among the results of the model, unilateral liberalization by one country will generate a positive impact on the steady-state growth of all its partners while at the same time inducing a level effect on the liberalizing country that reduces the income gap between it and other, wealthier, countries. In some cases, the liberalizing country may even leapfrog over initially wealthier countries.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
1183.
Find related papers by JEL classification: E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General F10 - International Economics - - Trade - - - General F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
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