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Trade policy in a growth model with technology gap dynamics and simulations for South Africa

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  • Rattsø, Jørn
  • Stokke, Hildegunn E.

Abstract

We extend an open economy Ramsey model to include the technology gap to the world technology frontier. The setting is a middle income country with productivity growth driven by technology adoption and foreign capital goods stimulating spillover and catching up. The interaction of technology adoption and capital accumulation generates prolonged transition growth and strengthens the growth effect of increased openness. Model simulations reproduce the changing openness in South Africa 1960–2005. International sanctions and protectionism are represented by a calibrated tariff equivalent, and the counterfactual elimination of the tariff equivalent shows large potential for GDP growth. According to our preferred parameterization increased trade share by 10% points raises GDP level over time by about 12%. Separating the effects of openness between investment and productivity we find that almost 60% of the increase in GDP is due to increased productivity, partly because of interaction with higher investment.

Suggested Citation

  • Rattsø, Jørn & Stokke, Hildegunn E., 2012. "Trade policy in a growth model with technology gap dynamics and simulations for South Africa," Journal of Economic Dynamics and Control, Elsevier, vol. 36(7), pages 1042-1056.
  • Handle: RePEc:eee:dyncon:v:36:y:2012:i:7:p:1042-1056
    DOI: 10.1016/j.jedc.2012.02.005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jørn Rattsø & Hildegunn E. Stokke, 2013. "Trade, Skill Biased Technical Change and Wage Inequality in South Africa," Review of International Economics, Wiley Blackwell, vol. 21(3), pages 419-431, August.
    2. repec:eee:tefoso:v:128:y:2018:i:c:p:154-163 is not listed on IDEAS

    More about this item

    Keywords

    Growth model; Technology gap; World technology frontier; Trade policy; South Africa;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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