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Trade liberalization growth and productivity

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Timothy J. Kehoe & Mark J. Gibson & Kim J. Ruhl & Claustre Bajona, 2008. "Trade liberalization growth and productivity," 2008 Meeting Papers 789, Society for Economic Dynamics.
  • Handle: RePEc:red:sed008:789
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    References listed on IDEAS

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    1. Claustre Bajona & Timothy Kehoe, 2010. "Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 487-513, July.
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    3. Claustre Bajona & Timothy J. Kehoe, 2006. "Demographics in dynamic Heckscher-Ohlin models: overlapping generations versus infinitely lived consumers," Staff Report 377, Federal Reserve Bank of Minneapolis.
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    5. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Are Shocks to the Terms of Trade Shocks to Productivity?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
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    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. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Are Shocks to the Terms of Trade Shocks to Productivity?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
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    Cited by:

    1. Gibson, Mark & Graciano, Tim, 2011. "Trade Models with Heterogeneous Firms: What About Importing?," MPRA Paper 33048, University Library of Munich, Germany.
    2. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2012. "Productivity and the Welfare of Nations," Working Papers 621, Barcelona Graduate School of Economics.
    3. Crespo, Aranzazu, 2012. "Trade, Innovation and Productivity: A Quantitative Analysis of Europe," MPRA Paper 57162, University Library of Munich, Germany.
    4. International Monetary Fund, 2017. "Brazil; Selected Issues," IMF Staff Country Reports 17/216, International Monetary Fund.
    5. Andrew Atkeson & Ariel Tomás Burstein, 2010. "Innovation, Firm Dynamics, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 433-484, June.
    6. Ariel Burstein & Javier Cravino, 2015. "Measured Aggregate Gains from International Trade," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 181-218, April.
    7. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2012. "Productivity and the Welfare of Nations," Working Papers 621, Barcelona Graduate School of Economics.
    8. Gibson, Mark J. & Graciano, Tim A., 2012. "Trade Engagement and Producer Performance," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124833, Agricultural and Applied Economics Association.
    9. Stracca, Livio, 2013. "The rise of China and India: blessing or curse for the advanced countries?," Working Paper Series 1620, European Central Bank.

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