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Trade Liberalization and Endogenous Growth: A q-Theory Approach

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  • Baldwin, Richard
  • Forslid, Rikard

Abstract

This paper has two purposes. It introduces a direct approach to policy analysis in endogenous growth models - the q-theory approach - and uses this to illustrate several new openness-and-growth links that appear when we enrich the economic content of the early trade and growth models. The approach - inspired by Tobin's q - is merely a change of state variables and re-interpretation of steady-state conditions. The main difference is its focus on investment, which is after all, the heart of growth models. The approach's simplicity permits us to complicate the early models in interesting directions and to explicitly include trade barriers. The latter allows study of incremental policy reform rather than mere shifts from autarky to free trade (or small deviations from free trade) as in the early literature.

Suggested Citation

  • Baldwin, Richard & Forslid, Rikard, 1996. "Trade Liberalization and Endogenous Growth: A q-Theory Approach," CEPR Discussion Papers 1397, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1397
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    Keywords

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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