Abstract
This paper extends the learning-by-doing model of Alwyn Young (1991), which assumes bounded learning-by-doing in each industry and knowledge spillovers, from two perspectives. First, it introduces physical capital as another factor of production in addition to labor. Second, it takes into account capital accumulation and population growth. This extended model is then used to study the dynamic effects of learning-by-doing in both autarky and two-country free trade situations. The main findings are: 1. Learning-by-doing is the source of sustainable growth in the long-run; 2. In both autarky and free trade situations, an increase in population growth rate or saving rate expedites both the growth rate of Real GDP per capita and technical progress in the long-run; 3. Compared with the autarky situation, under free trade the LDC experiences slower growth rate of per-capita output and slower technical progress, while the situation in DC is just the opposite. In addition, the effects of free trade on intertemporal welfare as well as the implications of a change in population growth rate or saving rate are also discussed based on the conclusions in Young (1991).
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