Globalization, rent protection institutions, and going alone in freeing trade

Abstract

We construct a two-country North–South Product-cycle model of trade with endogenous growth and trade barriers. We remove the scale effects on growth by incorporating rent protection activities by Northern incumbents. We examine the effects of two forms of globalization – an expansion of the relative size of the South and unilateral trade liberalization by either country. We find that the location of rent protection institutions and the sectoral trade structure determine whether or not globalization raises steady-state economic growth. We demonstrate that for accelerating worldwide economic growth, contrary to conventional wisdom, unilateral Northern trade liberalization is preferable to bilateral trade liberalization.