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Idea Flows, Economic Growth, and Trade

Author

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  • Fernando E. Alvarez
  • Francisco J. Buera
  • Robert E. Lucas, Jr.

Abstract

We provide a theoretical description of a process that is capable of generating growth and income convergence among economies, and where freer trade has persistent, positive effects on productivity, beyond the standard efficiency gains due to reallocation effects. We add to a standard Ricardian model a theory of endogenous growth where the engine of growth is the flow of ideas. Ideas are assumed to diffuse by random meetings where people get new ideas by learning from the people they do business with or compete with. Trade then has a selection effect of putting domestic producers in contact with the most efficient foreign and domestic producers. We analyze the way that trade in goods, and impediments to it, affect this diffusion. We find that exclusion of a country from trade reduces productivity growth, with large long-term effects. Smaller trade costs have moderate effects on productivity.

Suggested Citation

  • Fernando E. Alvarez & Francisco J. Buera & Robert E. Lucas, Jr., 2013. "Idea Flows, Economic Growth, and Trade," NBER Working Papers 19667, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19667
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Understanding Diffusion Models of Growth
      by dvollrath in The Growth Economics Blog on 2015-07-13 22:29:37

    Citations

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    Cited by:

    1. Michele Battisti & Massimo Del Gatto & Christopher F. Parmeter, 2014. "Labor Productivity Growth: Disentangling Technology and Capital Accumulation," Working Papers 2014-02, University of Miami, Department of Economics.
    2. repec:kap:jecgro:v:23:y:2018:i:1:d:10.1007_s10887-017-9143-1 is not listed on IDEAS
    3. Akcigit, Ufuk & Grigsby, John & Nicholas, Tom, 2017. "The Rise of American Ingenuity: Innovation and Inventors of the Golden Age," CEPR Discussion Papers 11755, C.E.P.R. Discussion Papers.
    4. Nathaniel Baum-Snow & J. Vernon Henderson & Matthew Turner & Loren Brandt & Qinghua Zhang, 2015. "Transport Infrastructure, Urban Growth and Market Access in China," ERSA conference papers ersa15p1177, European Regional Science Association.
    5. Jackson, Matthew O. & Rogers, Brian & Zenou, Yves, 2016. "Networks: An economic perspective," CEPR Discussion Papers 11452, C.E.P.R. Discussion Papers.
    6. Chiara Criscuolo & Angelo Secchi, 2016. "Resources (mis)allocation, innovation and the competitiveness of Europe," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 43(1), pages 1-9, March.
    7. Alessandro Saia & Dan Andrews & Silvia Albrizio, 2015. "Productivity Spillovers from the Global Frontier and Public Policy: Industry-Level Evidence," OECD Economics Department Working Papers 1238, OECD Publishing.
    8. Hirokazu Ishise, 2015. "Development Accounting and International Trade," ISER Discussion Paper 0944, Institute of Social and Economic Research, Osaka University.

    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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