April  2017, 4(2): 175-190. doi: 10.3934/jdg.2017010

Trade and growth: A simple model with NOT-SO-Simple implications

Department of Economics. Universidad Carlos Ⅲ, c/ Madrid 126, Getafe. 28903, Madrid. Spain

* Corresponding author

Received  October 2016 Revised  February 2017 Published  March 2017

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.

Citation: Luis C. Corchon. Trade and growth: A simple model with NOT-SO-Simple implications. Journal of Dynamics & Games, 2017, 4 (2) : 175-190. doi: 10.3934/jdg.2017010
References:
[1]

R. Baldwin and E. Seghezza, Growth and european integration: Towards an empirical assessment, CEPR Discussion Paper Series, 1996.Google Scholar

[2]

P. K. Bardham, Equilibrium Growth in the international economy, Quarterly Journal of Economics, 79 (1965), 455-464. Google Scholar

[3]

M. Baxter, Fiscal policy, specialization and trade in the two sector model, the return of Richardo?, Journal of Political Economy, 100 (1992), 713-744. Google Scholar

[4]

J. Bhagwati, A. Panagariya and T. N. Srinivasan, Lectures on International Trade, The MIT Press, second edition, 1998.Google Scholar

[5]

Z. Chen, Long-run equilibria in a dynamic Heckscher-Ohlin Model, The Canadian Journal of Economics, 25 (1992), 923-943. doi: 10.2307/135772. Google Scholar

[6]

A. V. Deardorff, The gains from trade in and out steady-state growth, Comparative Advantage, Growth, and the Gains from Trade and Globalization, 16 (2011), 217-236. doi: 10.1142/9789814340373_0021. Google Scholar

[7]

A. Dixit and V. Norman, Theory of international trade, Nisbet/Cambridge University Press, 1980.Google Scholar

[8]

E. Domar, Capital expansion, rate of growth, and employment, Econometrica, 14 (1946), 137-147. doi: 10.2307/1905364. Google Scholar

[9]

J. A. Frankel and D. Romer, Does trade causes growth?, American Economic Review, 89 (1999), 379-399. Google Scholar

[10]

H. G. Johnson, Trade and growth: A geometric exposition, Journal of International Economics, 1 (1971), 83-101. doi: 10.1016/0022-1996(71)90017-1. Google Scholar

[11]

G. Grossman and E. Helpman, Innovation and Growth in the Global Economy, Cambridge, MIT, 1991.Google Scholar

[12]

F. R. Harrod, An essay in dynamic theory, The Economic Journal, 49 (1939), 14-33. Google Scholar

[13]

R. Levine and D. Renelt, A sensitivity analysis of cross-country growth regressions, American Economic Review, 82 (1992), 942-963. Google Scholar

[14]

R. Lucas, On the mechanics of economic development, Journal of Monetary economics, 22 (1988), 3-42. doi: 10.1016/0304-3932(88)90168-7. Google Scholar

[15]

H. Oniki and H. Uzawa, Patterns of trade investment in a dynamic model of international trade, Review of Economic Studies, 32 (1965), 15-37. doi: 10.2307/2296328. Google Scholar

[16]

S. Rebelo, Long-Run policy analysis and long-run growth, Journal of Political Economy, 99 (1991), 500-521. Google Scholar

[17]
[18]

X. Sala-i-Matin, I just ran two million regressions, American Economic Review Papers and Proceedings, 87 (1997), 178-183. Google Scholar

[19]

X. Sala-i-MartinG. Doppelholfer and R. I. Miller, Determinants of long term growth: A bayesian averaging of classical estimates (BACE) approach, American Economic Review, 94 (2004), 815-835. Google Scholar

[20]

A. Smith, Capital accumulation in the open two-sector economy, Economic journal, 87 (1977), 273-282. doi: 10.2307/2232086. Google Scholar

[21]

J. Stiglitz, Factor price equalization in a dynamic economy, Journal of Political Economy, 78 (1970), 456-488. doi: 10.1086/259644. Google Scholar

[22]

A. Takayama, International Trade, New York, Hold, Reinhart and Winston, 1972.Google Scholar

[23]

J. Ventura, Growth and interdependence, Quarterly Journal of Economics, 112 (1997), 57-84. doi: 10.1162/003355397555127. Google Scholar

show all references

References:
[1]

R. Baldwin and E. Seghezza, Growth and european integration: Towards an empirical assessment, CEPR Discussion Paper Series, 1996.Google Scholar

[2]

P. K. Bardham, Equilibrium Growth in the international economy, Quarterly Journal of Economics, 79 (1965), 455-464. Google Scholar

[3]

M. Baxter, Fiscal policy, specialization and trade in the two sector model, the return of Richardo?, Journal of Political Economy, 100 (1992), 713-744. Google Scholar

[4]

J. Bhagwati, A. Panagariya and T. N. Srinivasan, Lectures on International Trade, The MIT Press, second edition, 1998.Google Scholar

[5]

Z. Chen, Long-run equilibria in a dynamic Heckscher-Ohlin Model, The Canadian Journal of Economics, 25 (1992), 923-943. doi: 10.2307/135772. Google Scholar

[6]

A. V. Deardorff, The gains from trade in and out steady-state growth, Comparative Advantage, Growth, and the Gains from Trade and Globalization, 16 (2011), 217-236. doi: 10.1142/9789814340373_0021. Google Scholar

[7]

A. Dixit and V. Norman, Theory of international trade, Nisbet/Cambridge University Press, 1980.Google Scholar

[8]

E. Domar, Capital expansion, rate of growth, and employment, Econometrica, 14 (1946), 137-147. doi: 10.2307/1905364. Google Scholar

[9]

J. A. Frankel and D. Romer, Does trade causes growth?, American Economic Review, 89 (1999), 379-399. Google Scholar

[10]

H. G. Johnson, Trade and growth: A geometric exposition, Journal of International Economics, 1 (1971), 83-101. doi: 10.1016/0022-1996(71)90017-1. Google Scholar

[11]

G. Grossman and E. Helpman, Innovation and Growth in the Global Economy, Cambridge, MIT, 1991.Google Scholar

[12]

F. R. Harrod, An essay in dynamic theory, The Economic Journal, 49 (1939), 14-33. Google Scholar

[13]

R. Levine and D. Renelt, A sensitivity analysis of cross-country growth regressions, American Economic Review, 82 (1992), 942-963. Google Scholar

[14]

R. Lucas, On the mechanics of economic development, Journal of Monetary economics, 22 (1988), 3-42. doi: 10.1016/0304-3932(88)90168-7. Google Scholar

[15]

H. Oniki and H. Uzawa, Patterns of trade investment in a dynamic model of international trade, Review of Economic Studies, 32 (1965), 15-37. doi: 10.2307/2296328. Google Scholar

[16]

S. Rebelo, Long-Run policy analysis and long-run growth, Journal of Political Economy, 99 (1991), 500-521. Google Scholar

[17]
[18]

X. Sala-i-Matin, I just ran two million regressions, American Economic Review Papers and Proceedings, 87 (1997), 178-183. Google Scholar

[19]

X. Sala-i-MartinG. Doppelholfer and R. I. Miller, Determinants of long term growth: A bayesian averaging of classical estimates (BACE) approach, American Economic Review, 94 (2004), 815-835. Google Scholar

[20]

A. Smith, Capital accumulation in the open two-sector economy, Economic journal, 87 (1977), 273-282. doi: 10.2307/2232086. Google Scholar

[21]

J. Stiglitz, Factor price equalization in a dynamic economy, Journal of Political Economy, 78 (1970), 456-488. doi: 10.1086/259644. Google Scholar

[22]

A. Takayama, International Trade, New York, Hold, Reinhart and Winston, 1972.Google Scholar

[23]

J. Ventura, Growth and interdependence, Quarterly Journal of Economics, 112 (1997), 57-84. doi: 10.1162/003355397555127. Google Scholar

Table 1.   
Country B
Country A Consump. good only Cap. good only Both goods
Consump. good only I V C A V C A
Cap. good only Complete Spec. I A specializes
Both goods B specializes V C A V C A
Country B
Country A Consump. good only Cap. good only Both goods
Consump. good only I V C A V C A
Cap. good only Complete Spec. I A specializes
Both goods B specializes V C A V C A
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