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Trade Liberalization, Growth, and Productivity

Author

Listed:
  • Timothy J. Kehoe

    (University of Minnesota)

  • Mark J. Gibson

    (Washington State University)

  • Kim J. Ruhl

    (Stern School, New York University)

  • Claustre Bajna

    (Ryerson University)

Abstract

We investigate the theoretical relationship between trade policy and growth. We use simple versions of some of the most common international trade models to investigate a number of specific mechanisms by which trade liberalization is thought to enhance growth or productivity: improvements in the terms of trade, increases in product variety, reallocation toward more productive firms, and an increased incentive to accumulate capital. In each model, trade liberalization improves social welfare. This is to be expected, but our results on real GDP may come as a surprise. In the static models, there is no general connection between trade liberalization and increases in real GDP per capita â the relationship may even be negative. In a dynamic model with capital accumulation, some countries will have slower rates of growth under free trade than under autarky. Opening to trade improves welfare, but does not necessarily increase real GDP per capita or speed up growth. If openness does in fact lead to large increases in real GDP, these increases do not come from the standard mechanisms of international trade.

Suggested Citation

  • Timothy J. Kehoe & Mark J. Gibson & Kim J. Ruhl & Claustre Bajna, 2011. "Trade Liberalization, Growth, and Productivity," 2011 Meeting Papers 794, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:794
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    References listed on IDEAS

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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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