trade and uneven growth

trade and uneven growth - NBER WORKING PAPER SERIES TRADE...

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NBER WORKING PAPER SERIES TRADE A1D UNEVEN CROtflH Robert Feenstra Working Paper No. 3276 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 March 1990 The research for this paper was completed while the author was visiting at the Institute for Advanced Studies, Hebrew University of Jerusalem. He thanks Gene Grossman, Elhanan Helpman and Joaquim Silvestre for very helpful discussions. This paper is part of NEERs research program in International Studies. Any opinions expressed are those of the author and not those of the National Bureau of Economic Research.
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NBER Working Paper #3276 March 1990 TRADE AND UNEVEN GROWTH ABSTRACT We consider trade between two countries of unequal size, where the creation of new intermediate inputs occurs in both. We assume that the knowledge gained from R&D in one country does not spillover to the other. Under autarky. the larger country would have a higher rate of product creation. When trade occurs in the final goods, we find that the smalLer country has its rate of product creation stowed, even in the long run. In contrast, the larger êountry enjogs a temporary increase in its rate of R&D. We also examine the welfare consequences of trade in the final goods, which depend on whether the intermediate inputs are traded or not. Robert Feenstra Department of Economics University of California Davis, CA 95616 (916)752-7022
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1. Introduction There has recently been a resurgence of interest in models of economic growth, prompted by the development of models In where the growth rate depends endogenously on the accumulation of human capital (Lucas, 1986) or product creation bg firms (Romer. 1990). These models can be used to address a number of issues long discussed in the trade and development literature, including: conditions under which industrialization will occur in a country (Murphy. Shleifer and Vlshny. 1969); formal analysis of the product Cycle' in trade (Grossman and Helpman. I 989c: Segerstrom. Anant and Dinopoulos. 1 969); the effects of tariffs and quotas on growth (Dinopoulos, Oehmke and Seger- strom. 1989; Grossman and Helpman, 1 gegd): and other issues. In this paper we shalt be concerned with the effect of international trade on the rate of product development in a country, using a model which is closely related to that of Grossman and Helpman (1989b) and Rivera-Datiz and Romer (1969).1 The basic outline of our model is as follows. Each country produces a final good which is traded internationally. The final goods are assembled from a range of intermediate inputs, whose number wilt grow endogenously over time. As in Ethier (1982). an increase in the range of intermediate inputs allows for more efficient production of the final goods. In the initial version of our model we shall suppose that the intermediate goods are not traded between countries, but as we later show, this assumption is easily relaxed.
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This note was uploaded on 12/24/2009 for the course ECON 160A taught by Professor Mojaver during the Fall '08 term at UC Davis.

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trade and uneven growth - NBER WORKING PAPER SERIES TRADE...

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