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Trade-Induced Investment-led Growth

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  • Richard E. Baldwin
  • Elena Seghezza

Abstract

This paper presents five theoretical openness-and-growth links that can account for trade-induced investment-led growth. The links are all demonstrated with neoclassical growth models developed in the context of trade models that allow for imperfect competition and scale economies. This sort of old-growth-theory-in-a-new-trade-model has not been thoroughly explored in the literature since the profession skipped from old-growth-old-trade models straight to new-growth-new- trade models. Nonetheless, such models are necessary to explain several key aspects of the econometric evidence on trade and growth. For example, cross-country data suggests that openness influences growth only via its effect on investment, and suggests that openness promotes investment in all countries whatever the capital-intensive of their exports (contrary to predictions of the old-growth-old-trade models).

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5582.

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Date of creation: May 1996
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Publication status: published as Seghezza, Elena & Baldwin, Richard E., 2008. "Testing for Trade-Induced Investment-Led Growth," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 61(2-3), pages 507-537.
Handle: RePEc:nbr:nberwo:5582

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  1. Baldwin, Richard & Seghezza, Elena, 1996. "Trade-induced Investment-led Growth," CEPR Discussion Papers 1420, C.E.P.R. Discussion Papers.
  2. James Brander & Paul Krugman, 1980. "A "Reciprocal Dumping" Model of International Trade," Working Papers 405, Queen's University, Department of Economics.
  3. Jong-Wha Lee, 1992. "International Trade, Distortions and Long-Run Economic Growth," IMF Working Papers 92/90, International Monetary Fund.
  4. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  5. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  6. Jong-Wha Lee, 1994. "Capital Goods Imports and Long-Run Growth," NBER Working Papers 4725, National Bureau of Economic Research, Inc.
  7. Baldwin, Richard E. & Forslid, Rikard, 2000. "Trade liberalisation and endogenous growth: A q-theory approach," Journal of International Economics, Elsevier, vol. 50(2), pages 497-517, April.
  8. Jones, Charles I, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 495-525, May.
  9. J. Bradford De Long & Lawrence H. Summers, . "Equipment Investment and Economic Growth," J. Bradford De Long's Working Papers _122, University of California at Berkeley, Economics Department.
  10. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  11. Richard E. Baldwin, 1992. "On the Growth Effects of Import Competition," NBER Working Papers 4045, National Bureau of Economic Research, Inc.
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