Idea Flows, Economic Growth, and Trade

Fernando E. Alvarez, Francisco Buera and Robert Lucas

No 19667, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide a theoretical description of a process that is capable of generating growth and income convergence among economies, and where freer trade has persistent, positive effects on productivity, beyond the standard efficiency gains due to reallocation effects. We add to a standard Ricardian model a theory of endogenous growth where the engine of growth is the flow of ideas. Ideas are assumed to diffuse by random meetings where people get new ideas by learning from the people they do business with or compete with. Trade then has a selection effect of putting domestic producers in contact with the most efficient foreign and domestic producers. We analyze the way that trade in goods, and impediments to it, affect this diffusion. We find that exclusion of a country from trade reduces productivity growth, with large long-term effects. Smaller trade costs have moderate effects on productivity.

JEL-codes: F1 O11 O19 O33 (search for similar items in EconPapers)
Date: 2013-11
New Economics Papers: this item is included in nep-dge and nep-int
Note: EFG ITI
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Citations: View citations in EconPapers (63)

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