Helping thy neighbour: productivity, welfare and international trade
We describe the relation between welfare growth and productivity growth. We argue that differences in productivity and productivity growth between sectors or countries are irrelevant from a policy perspective. Specialisation is based on the comparative advantages of countries. Since, by nature, some sectors witness higher productivity growth than others, so do countries. Although, at the global level, productivity growth and welfare growth are two sides of the same coin, at the national level they are not. The welfare effects of productivity growth in part leak away to consumers in other countries because technological progress is translated into a decline of export prices relative to import prices. Or stated differently, importing countries benefit from the lower prices due to technological innovations in exporting countries. These terms of trade effects of productivity growth on welfare do not only exist in theory. Empirically, we find significant and large terms of trade effects. Our overall conclusion is that once this trade perspective is taken into account, productivity is less attractive as a primary policy goal for governments. The primary task for governments is rather to create an environment in which private agents can explore the comparative advantages they have.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Daron Acemoglu & Jaume Ventura, 2001.
"The World Income Distribution,"
NBER Working Papers
8083, National Bureau of Economic Research, Inc.
- Bart van Ark, 2001. "The Renewal of the Old Economy: An International Comparative Perspective," OECD Science, Technology and Industry Working Papers 2001/5, OECD Publishing.
- Richard E. Baldwin & Frédéric Robert-Nicoud, 2007.
"Entry and Asymmetric Lobbying: Why Governments Pick Losers,"
Journal of the European Economic Association,
MIT Press, vol. 5(5), pages 1064-1093, 09.
- Richard E. Baldwin & Frederic Robert-Nicoud, 2002. "Entry and Asymmetric Lobbying: Why Governments Pick Losers," NBER Working Papers 8756, National Bureau of Economic Research, Inc.
- Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Entry and asymmetric lobbying: why governments pick losers," LSE Research Online Documents on Economics 19726, London School of Economics and Political Science, LSE Library.
- Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Entry and Asymmetric Lobbying: Why Governments Pick Losers," CEP Discussion Papers dp0791, Centre for Economic Performance, LSE.
- Tamim Bayoumi & Markus Haacker, 2002.
"Its Not What You Make, Its How You Use IT: Measuring the Welfare Benefits of the IT Revolution Across Countries,"
CEP Discussion Papers
dp0548, Centre for Economic Performance, LSE.
- Bayoumi, Tamim & Haacker, Markus, 2002. "It's Not What You Make, It's How You Use IT: Measuring the Welfare Benefits of the IT Revolution Across Countries," CEPR Discussion Papers 3555, C.E.P.R. Discussion Papers.
- Tamim Bayoumi & Maarkus Haacker, 2002. "It's not what you make, it's how you use IT: measuring the welfare benefits of the IT revolution across countries," LSE Research Online Documents on Economics 20066, London School of Economics and Political Science, LSE Library.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977.
"Monopolistic Competition and Optimum Product Diversity,"
American Economic Review,
American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- Romer, Paul M, 1986.
"Increasing Returns and Long-run Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 94(5), pages 1002-1037, October.
- Martine Durand & Jacques Simon & Colin Webb, 1992. "OECD's Indicators of International Trade and Competitiveness," OECD Economics Department Working Papers 120, OECD Publishing.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpit:0404008. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.