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Trade-Induced Investment-led Growth

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  • Richard E. Baldwin
  • Elena Seghezza

Abstract

This paper presents five theoretical openness-and-growth links that can account for trade-induced investment-led growth. The links are all demonstrated with neoclassical growth models developed in the context of trade models that allow for imperfect competition and scale economies. This sort of old-growth-theory-in-a-new-trade-model has not been thoroughly explored in the literature since the profession skipped from old-growth-old-trade models straight to new-growth-new- trade models. Nonetheless, such models are necessary to explain several key aspects of the econometric evidence on trade and growth. For example, cross-country data suggests that openness influences growth only via its effect on investment, and suggests that openness promotes investment in all countries whatever the capital-intensive of their exports (contrary to predictions of the old-growth-old-trade models).

Suggested Citation

  • Richard E. Baldwin & Elena Seghezza, 1996. "Trade-Induced Investment-led Growth," NBER Working Papers 5582, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5582
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    References listed on IDEAS

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    1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
    2. Baldwin, Richard E. & Forslid, Rikard, 2000. "Trade liberalisation and endogenous growth: A q-theory approach," Journal of International Economics, Elsevier, vol. 50(2), pages 497-517, April.
    3. Charles I. Jones, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 495-525.
    4. Baldwin, Richard & Seghezza, Elena, 1996. "Trade-induced Investment-led Growth," CEPR Discussion Papers 1420, C.E.P.R. Discussion Papers.
    5. J. Bradford De Long & Lawrence H. Summers, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 445-502.
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    11. Richard E. Baldwin, 1992. "On the Growth Effects of Import Competition," NBER Working Papers 4045, National Bureau of Economic Research, Inc.
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    More about this item

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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