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Globalization, economic growth, and innovation: A two-country two-period model

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  • Cuong Le Van
  • Duc V. Le
  • Thanh Tam Nguyen-Huu

Abstract

This paper examines how a developing country can benefit from trade liberalization. We develop a two-period model, comprising an autarky phase and a globalization phase, and a two-country framework, featuring a developing country and a developed country (representing the rest of the world). Our findings indicate that globalization may disadvantage a developing country when its total factor productivity (TFP) is significantly lower than that of the developed country. However, we demonstrate that the developing country can still achieve gains from trade openness by allocating part of its capital to innovation during the autarky period, thereby enhancing its TFP.

Suggested Citation

  • Cuong Le Van & Duc V. Le & Thanh Tam Nguyen-Huu, 2026. "Globalization, economic growth, and innovation: A two-country two-period model," Papers 2606.23861, arXiv.org.
    • Handle: RePEc:arx:papers:2606.23861
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