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Trade liberalization growth and productivity

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  • Timothy J. Kehoe

    (University of Minnesota, Federal Reserve Bank of Minneapolis, and NBER)

  • Mark J. Gibson

    (Washington State University)

  • Kim J. Ruhl

    (University of Texas at Austin)

  • Claustre Bajona

    (Ryerson University)

Abstract

There is a lively debate about the impact of trade liberalization on economic growth measured as growth in real gross domestic product (GDP). Most of this literature focuses on the empirical relation between trade and growth. This paper investigates the theoretical relation between trade and growth. We show that standard models — including Ricardian models, Heckscher-Ohlin models, monopolistic competition models with homogeneous firms, and monopolistic competition models with heterogeneous firms — predict that opening to trade increases welfare, not necessarily real GDP as measured in the data. In a dynamic model where trade changes the incentives to accumulate factors of production, trade liberalization may lower growth rates even as it increases welfare. To the extent that trade liberalization leads to higher rates of growth in real GDP, it must do so primarily through mechanisms outside of those analyzed in standard models.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 789.

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Date of creation: 2008
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Handle: RePEc:red:sed008:789

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  1. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
  2. Claustre Bajona & Timothy J. Kehoe, 2006. "Demographics in dynamic Heckscher-Ohlin models: overlapping generations versus infinitely lived consumers," Staff Report, Federal Reserve Bank of Minneapolis 377, Federal Reserve Bank of Minneapolis.
  3. Claustre Bajona & Timothy J. Kehoe, 2008. "Trade, growth, and convergence in a dynamic Heckscher-Ohlin model," Staff Report, Federal Reserve Bank of Minneapolis 378, Federal Reserve Bank of Minneapolis.
  4. Timothy J. Kehoe & Kim J. Ruhl, 2007. "Are Shocks to the Terms of Trade Shocks to Productivity?," NBER Working Papers 13111, National Bureau of Economic Research, Inc.
  5. Joshua J. Lewer & Hendrik Van den Berg, 2003. "How Large Is International Trade's Effect on Economic Growth?," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 17(3), pages 363-396, 07.
  6. Timothy J. Kehoe & Kim Ruhl, 2008. "Data Appendix to "Are Shocks to the Terms of Trade Shocks to Productivity?"," Technical Appendices, Review of Economic Dynamics 07-40, Review of Economic Dynamics.
  7. Yanikkaya, Halit, 2003. "Trade openness and economic growth: a cross-country empirical investigation," Journal of Development Economics, Elsevier, Elsevier, vol. 72(1), pages 57-89, October.
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Cited by:
  1. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2012. "Productivity and the Welfare of Nations," Working Papers, Barcelona Graduate School of Economics 621, Barcelona Graduate School of Economics.
  2. Timothy J. Kehoe & Kim J. Ruhl, 2010. "Why Have Economic Reforms in Mexico Not Generated Growth?," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 48(4), pages 1005-27, December.
  3. Stracca, Livio, 2013. "The rise of China and India: blessing or curse for the advanced countries?," Working Paper Series, European Central Bank 1620, European Central Bank.
  4. Crespo, Aranzazu, 2012. "Trade, Innovation and Productivity: A Quantitative Analysis of Europe," MPRA Paper 57162, University Library of Munich, Germany.
  5. Gibson, Mark & Graciano, Tim, 2011. "Trade Models with Heterogeneous Firms: What About Importing?," MPRA Paper 33048, University Library of Munich, Germany.
  6. Gibson, Mark J. & Graciano, Tim A., 2012. "Trade Engagement and Producer Performance," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington, Agricultural and Applied Economics Association 124833, Agricultural and Applied Economics Association.

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