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Trade liberalization growth and productivity

Listed author(s):
  • Timothy J. Kehoe

    (University of Minnesota, Federal Reserve Bank of Minneapolis, and NBER)

  • Mark J. Gibson

    (Washington State University)

  • Kim J. Ruhl

    (University of Texas at Austin)

  • Claustre Bajona

    (Ryerson University)

There is a lively debate about the impact of trade liberalization on economic growth measured as growth in real gross domestic product (GDP). Most of this literature focuses on the empirical relation between trade and growth. This paper investigates the theoretical relation between trade and growth. We show that standard models — including Ricardian models, Heckscher-Ohlin models, monopolistic competition models with homogeneous firms, and monopolistic competition models with heterogeneous firms — predict that opening to trade increases welfare, not necessarily real GDP as measured in the data. In a dynamic model where trade changes the incentives to accumulate factors of production, trade liberalization may lower growth rates even as it increases welfare. To the extent that trade liberalization leads to higher rates of growth in real GDP, it must do so primarily through mechanisms outside of those analyzed in standard models.

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File URL: https://economicdynamics.org/meetpapers/2008/paper_789.pdf
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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 789.

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Date of creation: 2008
Handle: RePEc:red:sed008:789
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/society.htm
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  1. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, 06.
  2. Claustre Bajona & Timothy J. Kehoe, 2006. "Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model," NBER Working Papers 12567, National Bureau of Economic Research, Inc.
  3. Jaume Ventura, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 57-84.
  4. Luis A. Rivera-Batiz & Paul M. Romer, 1990. "Economic Integration and Endogenous Growth," NBER Working Papers 3528, National Bureau of Economic Research, Inc.
  5. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
  6. Joshua J. Lewer & Hendrik Van den Berg, 2003. "How Large Is International Trade's Effect on Economic Growth?," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 363-396, 07.
  7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  8. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  9. Rodríguez, Francisco & Rodrik, Dani, 1999. "Trade Policy and Economic Growth: A Sceptic's Guide to the Cross-National Evidence," CEPR Discussion Papers 2143, C.E.P.R. Discussion Papers.
  10. Diewart, W Erwin & Morrison, Catherine J, 1986. "Adjusting Output and Productivity Indexes for Changes in the Terms of Trade," Economic Journal, Royal Economic Society, vol. 96(383), pages 659-679, September.
  11. Timothy J. Kehoe & Kim J. Ruhl, 2007. "Are shocks to the terms of trade shocks to productivity?," Staff Report 391, Federal Reserve Bank of Minneapolis.
  12. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  13. Timothy J. Kehoe & Kim Ruhl, 2008. "Data Appendix to "Are Shocks to the Terms of Trade Shocks to Productivity?"," Technical Appendices 07-40, Review of Economic Dynamics.
  14. Claustre Bajona, 2010. "Demographics in Dynamic Heckscher-Ohlin Models: Overlapping Generations versus Infinitely Lived Consumers," 2010 Meeting Papers 1172, Society for Economic Dynamics.
  15. Arvind Subramanian & Francesco Trebbi & Dani Rodrik, 2002. "Institutions Rule; The Primacy of Institutions over Integration and Geography in Economic Development," IMF Working Papers 02/189, .
  16. Michaely, Michael, 1977. "Exports and growth : An empirical investigation," Journal of Development Economics, Elsevier, vol. 4(1), pages 49-53, February.
  17. Slaughter, Matthew J., 2001. "Trade liberalization and per capita income convergence: a difference-in-differences analysis," Journal of International Economics, Elsevier, vol. 55(1), pages 203-228, October.
  18. Kohli, Ulrich, 2004. "Real GDP, real domestic income, and terms-of-trade changes," Journal of International Economics, Elsevier, vol. 62(1), pages 83-106, January.
  19. Dollar, David & Kraay, Aart, 2001. "Trade, growth, and poverty," Policy Research Working Paper Series 2615, The World Bank.
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