Abstract
In many endogenous growth models, trade leads to the convergence of growth rates across countries. What has not been adequately recognized is that this result depends on one crucial assumption: that trade occurs simultaneously with the international diffusion of knowledge. If instead we drop this assumption, and consider the case where no diffusion of knowledge occurs, then we find that trade in goods can lead to a divergence of growth rates. We also explore how these results are affected by trade in intermediate inputs or by multinational corporations, which may facilitate the diffusion of knowledge.
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