Growth And Welfare In A Small Open Economy
AbstractWe construct a model of growth based on endogenous technological change in a small, open economy. Entrepreneurs develop new intermediate products whenever the present value of potential profits exceeds the cost of R&D. Diversity of intermediates contributes to total factor productivity in the production of final goods. The economy produces two such final goods, and trades these at exogenously given world prices. We study the welfare implications of R&D subsidies and commercial policy. There exists an optimal subsidy to R&D that speeds growth relative to the market-determined rate. The optimal subsidy achieves the first-best rate of growth, but not the first-best level of welfare. Small tariffs and export subsidies also affect both growth and welfare. Growth may increase or decrease, depending upon which sector is promoted by the trade policy. But an increase in the growth rate is neither necessary nor sufficient for a trade policy to improve welfare. Finally, we compare tariffs and quotas, when the latter give rise to rent-seeking behavior. The diversion of resources from innovative activities to rent seeking can have dire implications for growth and welfare.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Tel Aviv in its series Papers with number 15-89.
Length: 29 pages
Date of creation: 1989
Date of revision:
Contact details of provider:
Postal: Israel TEL-AVIV UNIVERSITY, THE FOERDER INSTITUTE FOR ECONOMIC RESEARCH, RAMAT AVIV 69 978 TEL AVIV ISRAEL.
Web page: http://econ.tau.ac.il/research/foerder.asp
More information through EDIRC
open economy ; economic growth ; social welfare ; innovations ; research and development;
Other versions of this item:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- 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.
- Ozturk, Ilhan, 2001. "The role of education in economic development: a theoretical perspective," MPRA Paper 9023, University Library of Munich, Germany.
- Rivera-Batiz, Luis A. & Romer, Paul M., 1991.
"International trade with endogenous technological change,"
European Economic Review,
Elsevier, vol. 35(4), pages 971-1001, May.
- Luis A. Rivera-Batiz & Paul M. Romer, 1992. "International Trade with Endogenous Technological Change," NBER Working Papers 3594, National Bureau of Economic Research, Inc.
- Padoan, Pier Carlo, 1998. "Trade, knowledge accumulation and diffusion: A sectoral perspective1," Structural Change and Economic Dynamics, Elsevier, vol. 9(3), pages 349-372, September.
- Klundert, T.C.M.J. van de & Meijdam, L., 1991.
"Endogenous growth and income distribution,"
1991-23, Tilburg University, Center for Economic Research.
- Klundert, Th. van de & Meijdam, A.C., 1993. "Endogenous growth and income distribution," Open Access publications from Tilburg University urn:nbn:nl:ui:12-381400, Tilburg University.
- Van de Klundert, T. & Meijdam, L., 1991. "Endogenous Growth and Income Distribution," Papers 9123, Tilburg - Center for Economic Research.
- Christou, Costas, 2001. "Differential Borrowing Constraints and Investment in Human Capital," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 277-295, April.
- Padoan, Pier Carlo, 1996. "Trade and the accumulation and diffusion of knowledge," Policy Research Working Paper Series 1679, The World Bank.
- Faiza Umer & Shaista Alam, 2013. "Effect of Openness to Trade and FDI on Industrial Sector Growth: A Case Study for Pakistan," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 16(48), pages 179-198, June.
- Badibanga, Thaddee Mutumba & Diao, Xinshen & Roe, Terry L. & Somwaru, Agapi, 2008. "Dynamics of Structural Transformation: Understanding the Key Factors That Drive Innovative Activities in Selected Asian and African Countries," Bulletins 43890, University of Minnesota, Economic Development Center.
- Klundert, T.C.M.J. van de, 1990. "Crowding out and the wealth of nations," Discussion Paper 1990-29, Tilburg University, Center for Economic Research.
- Xavier Sala-i-Martin, 1990.
"Lecture Notes on Economic Growth(II): Five Prototype Models of Endogenous Growth,"
NBER Working Papers
3564, National Bureau of Economic Research, Inc.
- Xavier Sala-i-Martin, 1994. "Lecture notes on economic growth (II): Five prototype models of endogenous growth," Economics Working Papers 78, Department of Economics and Business, Universitat Pompeu Fabra.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel).
If references are entirely missing, you can add them using this form.