Growth, Trade, and Government Policies of a Small Open Economy

Yih‐Luan Chyi

Review of Development Economics, 1999, vol. 3, issue 2, 122-139

Abstract: Utilizing a linear endogenous growth model, the paper provides an economic rationale for two empirical findings: the positive correlation between export growth and income growth, and the association of rapid structural changes with fast income growth. In the benchmark case, the small open economy converges eventually to a balanced growth path along which exports and total output grow at the same constant rate as consumption. Government policies affect the pattern of specialization and trade since they change the autarky or foreign relative price. Only taxation on the capital goods sector can affect asymptotic growth rates.

Date: 1999
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