Endogenous growth and trade liberalization between asymmetric countries

Daniela Marconi

No 630, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The paper presents a general equilibrium model of endogenous growth and trade between two countries, an advanced country (A) and a backward country (B). The development stage is summarized by the level of knowledge stock accumulated through R&D investments. The latter generates technological progress that intermediate goods producing firms, operating under increasing returns to scale and monopolistic competition, perform to obtain process innovations (reduction of production costs) when they are incumbents, or product innovations if they are new entrants. The model shows that convergence in long-run growth rates can be obtained even in absence of international technology spillover, in which case, under the assumption of no variety overlap, the gain from trade will be only static. Dynamic effects will be delivered instead in presence of an initial overlap in the varieties produced in the two countries, together with a wide gap in unit production costs. In this case it is shown that the impact of trade liberalization on firms profits might generate a cumulative causation process which may lead to a polarization of innovative productions in the advanced country.

Keywords: endogenous growth; trade liberalization; scale effect. (search for similar items in EconPapers)
JEL-codes: F12 O40 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_630_07

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