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International Trade with Endogenous Technological Change

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Author Info
Luis A. Rivera-Batiz
Paul M. Romer

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3594.

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Date of creation: Jan 1992
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Publication status: published as European Economic Review, Vol. 35, No. 4, pp. 971-1004, (May 1991).
Handle: RePEc:nbr:nberwo:3594

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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.:
  1. Feenstra, R.C., 1990. "Trade And Uneven Growth," Papers 353, California Davis - Institute of Governmental Affairs.
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  2. 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. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. Gene M. Grossman & Elhanan Helpman, 1989. "Growth and Welfare in A Small Open Economy," NBER Working Papers 2970, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. 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. [Downloadable!] (restricted)
  6. 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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  7. Robert E. Lucas, Jr., 1989. "On the Mechanics of Economic Development," NBER Reprints 1176, National Bureau of Economic Research, Inc.
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  8. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November. [Downloadable!] (restricted)
  9. Romer, Paul M, 1990. "Are Nonconvexities Important for Understanding Growth?," American Economic Review, American Economic Association, vol. 80(2), pages 97-103, May. [Downloadable!] (restricted)
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  10. Rivera-Batiz, Luis A & Romer, Paul M, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 531-55, May. [Downloadable!] (restricted)
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