International Trade and Growth: An Overview Using the New Growth Theory

Abstract

An overview of the new growth theory is provided from both an analytical and empirical perspective. Following a historical outline and a brief analytical sketch of the R&D-based models, the results from fitting two structural models to data are presented. Results show the relative impacts on growth from trade and R&D-based policies including technological spillovers from trade. The mechanism of intersectoral adjustments to the long-run growth path is also discussed. Insights provided by the theory are related to agriculture from the view of agriculture in the context of the broader economy within which it must compete for resources, and in terms of growth in agricultural factor productivity as evidenced by the recent growth in genetic engineering. t is generally agreed that the world economy is in its second wave of globalization, with the first wave ending in the early 1900s, and the second wave beginning in the late 1950s to early 1960s. Contributors to this literature, such as Baldwin and Martin, draw heavily on the new growth theory to explain this transformation. Agriculture also has a role in this transformation. Technological advances have caused U.S. agriculture in the second wave to evolve from its classic role as an exporter of a relatively narrow class of primary commodities supported mostly by public research and development (R&D) expenditures, to a larger share of processed food products in exports, with an increasing array of attributes linked to private R&D efforts (Gopinath and Roe). The general task of this paper is to provide a relatively nontechnical discussion of the insights that the new growth theory provides into the linkages between growth and trade with particular attention to agriculture. The paper contains four major sections. The following section introduces the new theory by briefly