International trade and uneven growth: a model with intersectoral spillovers of knowledge

We analyse a world economy composed of a continuum of small countries producing two final goods, the learning-by-doing potentials of which differ significantly. In autarky, the knowledge accumulated in the high-learning sector spills over into the low-learning one. A steady-state equilibrium common to all countries exists, in which both goods are produced. The steady-state growth rate is higher the larger is the relative share of the leading sector in the economy. Trade leads to complete specialization. In the absence of international spillovers, the growth rates of the trading countries diverge according to their comparative advantage. Both dynamic gains and losses from trade may be present. Further, we explore the possibility of international transmission of knowledge. The latter generates convergence of long-run growth rates across countries, with the duration of such a convergence being a decreasing function of the intensity of the international spillovers.