Dynamic Gains from Trade
This article examines the validity of a gains from trade proposition in a world in which the direction of technological change is determined endogenously. We first give an extreme example in which a part of the world that would smoothly develop under autarchy forever remains underdeveloped under free trade. An assumption is then introduced, which excludes the example and guarantees that development under free trade dominates development under autarchy in the long-run. The assumption is closely related to the assumption of irreducible markets in McKenzie . It requires the existence of a `closed scarcity chain' connecting tastes and endowments of all types of consumers. The result complements the classical gains from trade proposition that assumes the state of technological knowledge to be given.
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