Abstract
We present a simple model of international trade (IT) and growth. The model yields a unique equilibrium path in which the relationship between exogenous and endogenous variables does not resemble the equations estimated by the empirical literature: Ours are not linear, despite the fact that technology and demand are linear, they do not include variables used in this literature like shares of IT and investment and include variables that have never been used in this literature such as comparative and absolute advantage, specialization patterns, saving habits and technology of partner countries. Finally, the impact of the initial level of income and the number of years that the economy has been open is far more complicated than had been assumed by the literature.
Highlights
The question of the link between International Trade (IT) and growth is one of the most popular issues outside our profession
Iii) measures how changes in trade barriers a¤ect growth. In our model these changes take the simple form of switching from autarky to free trade. Despite this simpli...cation this e¤ect can not be captured by an additive dummy variable: Growth in country A is una¤ected and, in country B, the following possibilities may arise after a Trade Liberalization (TL):
In this paper we show that even in a model where IT is never harmful to growth and all relationships are linear, the exact relationship between trade and growth cannot be captured by a single equation
Summary
The question of the link between International Trade (IT) and growth is one of the most popular issues outside our profession. On the one hand we have general theoretical results on the performance of open economies (Bardham (1965), Oniki and Uzawa (1965), Stiglitz (1970), Johnson, (1971), Deardor¤ (1973), Smith, (1977), Baxter (1992) and Chen (1992)) These papers provide conditions for the convergence to a steady state and study its properties.. Of Ricardian ideas where trade is driven by di¤erences in technology and there is only one factor of production, and the Harrod/Domar/Rebelo (1991) model of endogenous growth, where all relationships between variables are linear. Some variables used by the empirical literature do not play a role in our case, like the share of IT in GDP. An Appendix extends the model to international capital mobility and two factors
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