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Trade Liberalization, Growth, and Productivity

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Author Info

  • Timothy J. Kehoe

    (University of Minnesota)

  • Mark J. Gibson

    (Washington State University)

  • Kim J. Ruhl

    (Stern School, New York University)

  • Claustre Bajna

    (Ryerson University)

Abstract

We investigate the theoretical relationship between trade policy and growth. We use simple versions of some of the most common international trade models to investigate a number of specific mechanisms by which trade liberalization is thought to enhance growth or productivity: improvements in the terms of trade, increases in product variety, reallocation toward more productive firms, and an increased incentive to accumulate capital. In each model, trade liberalization improves social welfare. This is to be expected, but our results on real GDP may come as a surprise. In the static models, there is no general connection between trade liberalization and increases in real GDP per capita â the relationship may even be negative. In a dynamic model with capital accumulation, some countries will have slower rates of growth under free trade than under autarky. Opening to trade improves welfare, but does not necessarily increase real GDP per capita or speed up growth. If openness does in fact lead to large increases in real GDP, these increases do not come from the standard mechanisms of international trade.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 794.

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Date of creation: 2011
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Handle: RePEc:red:sed011:794

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  1. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Are Shocks to the Terms of Trade Shocks to Productivity?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
  2. Claustre Bajona & Timothy J. Kehoe, 2006. "Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model," NBER Working Papers 12567, National Bureau of Economic Research, Inc.
  3. Yanikkaya, Halit, 2003. "Trade openness and economic growth: a cross-country empirical investigation," Journal of Development Economics, Elsevier, vol. 72(1), pages 57-89, October.
  4. Claustre Bajona & Timothy J. Kehoe, 2006. "Demographics in Dynamic Heckscher-Ohlin Models: Overlapping Generations Versus Infinitely Lived Consumers," NBER Working Papers 12566, National Bureau of Economic Research, Inc.
  5. 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.
  6. Joshua J. Lewer & Hendrik Van den Berg, 2003. "How Large Is International Trade's Effect on Economic Growth?," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 363-396, 07.
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Cited by:
  1. Basu, Susanto & Pascali, Luigi & Schiantarelli, Fabio & Serven, Luis, 2012. "Productivity and the welfare of nations," Policy Research Working Paper Series 6026, The World Bank.
  2. Timothy J. Kehoe & Kim J. Ruhl, 2010. "Why Have Economic Reforms in Mexico Not Generated Growth?," NBER Working Papers 16580, National Bureau of Economic Research, Inc.
  3. Gibson, Mark J. & Graciano, Tim A., 2012. "Trade Engagement and Producer Performance," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124833, Agricultural and Applied Economics Association.
  4. repec:cge:warwcg:162 is not listed on IDEAS
  5. Basu, Susanto & Pascali, Luigi & Schiantarelli, Fabio & Serven, Luis, 2013. "Productivity and the Welfare of Nations," CAGE Online Working Paper Series 163, Competitive Advantage in the Global Economy (CAGE).
  6. Gibson, Mark & Graciano, Tim, 2011. "Trade Models with Heterogeneous Firms: What About Importing?," MPRA Paper 33048, University Library of Munich, Germany.
  7. Stracca, Livio, 2013. "The rise of China and India: blessing or curse for the advanced countries?," Working Paper Series 1620, European Central Bank.

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