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An Eaton-Kortum Model of Trade and Growth

  • NAITO Takumi

We combine a multi-country, continuum-good Ricardian model of Eaton and Kortum (2002) with a multi-country AK model of Acemoglu and Ventura (2002) to examine how trade liberalization affects countries' growth rates and extensive margins of trade over time. Focusing on the three-country case, we obtain three main results. First, a permanent fall in any trade cost raises the balanced growth rate. Second, trade liberalization increases the liberalizing countries' long-run fractions of exported varieties to all destinations. Third, the long-run effects of trade liberalization are different from its short-run effects, which can reverse the welfare implications of the static Eaton-Kortum model.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12055.

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Length: 29 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:eti:dpaper:12055
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  1. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  2. Baldwin, Richard & Robert-Nicoud, Frédéric, 2005. "Trade and Growth with Heterogeneous Firms," CEPR Discussion Papers 4965, C.E.P.R. Discussion Papers.
  3. David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society.
  4. Jonathan Eaton & Samuel Kortum, 2012. "Putting Ricardo to Work," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 65-90, Spring.
  5. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  6. Alan M. Taylor & Antoni Estevadeordal, 2009. "Is the Washington Consensus Dead?: Growth, Openness, and the Great Liberalization, 1970s-2000s," IDB Publications (Working Papers) 9298, Inter-American Development Bank.
  7. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Naito, Takumi, 2012. "A Ricardian model of trade and growth with endogenous trade status," Journal of International Economics, Elsevier, vol. 87(1), pages 80-88.
  9. John Romalis, 2007. "Market Access, Openness and Growth," NBER Working Papers 13048, National Bureau of Economic Research, Inc.
  10. Daron Acemoglu & Jaume Ventura, 2001. "The World Income Distribution," NBER Working Papers 8083, National Bureau of Economic Research, Inc.
  11. Timothy J. Kehoe & Kim J. Ruhl, 2009. "How important is the new goods margin in international trade?," Staff Report 324, Federal Reserve Bank of Minneapolis.
  12. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
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