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The Transmission of Sustained Growth through the Terms of Trade in an Endogenous Growth Model

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  • Carmen Dolores Álvarez‐Albelo
  • Fernando Perera‐Tallo

Abstract

This paper develops a two‐country model of endogenous growth and international trade in intermediate goods. In autarky just one of the economies enjoys sustained growth. The trade situation may be characterized by complete specialization of both countries, or by incomplete specialization of the growing economy. In either case, trade transmits perpetual growth to the stagnant economy because of the permanent improvements in its terms of trade. The existence of a non‐reproducible factor in the growing economy is crucial to ensure propagation of growth. Moreover, under incomplete specialization countries converge in per capita income. This result relies on two assumptions. First, there must be a large enough share of world income to pay for the input in which the stagnant economy has comparative advantage. Second, all technologies producing intermediate goods should be equally intensive in the non‐reproducible factor.

Suggested Citation

  • Carmen Dolores Álvarez‐Albelo & Fernando Perera‐Tallo, 2008. "The Transmission of Sustained Growth through the Terms of Trade in an Endogenous Growth Model," Review of Development Economics, Wiley Blackwell, vol. 12(2), pages 386-396, May.
    • Handle: RePEc:bla:rdevec:v:12:y:2008:i:2:p:386-396
    DOI: 10.1111/j.1467-9361.2007.00373.x
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    References listed on IDEAS

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    1. Wolfgang Keller, 2004. "International Technology Diffusion," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 752-782, September.
    2. Wolfgang Keller, 2002. "Geographic Localization of International Technology Diffusion," American Economic Review, American Economic Association, vol. 92(1), pages 120-142, March.
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    Cited by:

    1. Hiroaki Sasaki, 2008. "North-South Asymmetry in Returns to Scale, Uneven Development, and the Population Puzzle," TERG Discussion Papers 238, Graduate School of Economics and Management, Tohoku University.
    2. Carmen Álvarez-Albelo & Raúl Hernández-Martín, 2007. "Explaining High Economic Growth in Small Tourism Countries with a Dynamic General Equilibrium Model," Working Papers XREAP2007-06, Xarxa de Referència en Economia Aplicada (XREAP), revised Jul 2007.
    3. Carmen D. à lvarez-Albelo & Raúl Hernández-Martín, 2009. "Specialization in Luxury Goods, Productivity Gaps and the Rapid Growth of Small Tourism Countries," Tourism Economics, , vol. 15(3), pages 567-589, September.

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