Growing through trade in intermediate goods: the role of foreign growth and domestic tariffs

Carmen D. Álvarez‐Albelo, Antonio Manresa and Mònica Pigem‐Vigo

Scottish Journal of Political Economy, 2018, vol. 65, issue 4, 414-436

Abstract: We show that pure Ricardian trade can account for the empirical evidence that domestic growth is more affected by foreign growth than by trade openness. To do this, we develop a two‐country model involving a backward economy that exchanges intermediate goods with a faster growing country. We obtain three main results regarding growth and welfare of the backward economy: (i) the growth‐enhancing comparative advantage is facilitated by faster foreign growth; (ii) the growth rate may be negatively affected or unaffected by a domestic tariff, while it is always positively impacted by foreign growth; and (iii) a domestic tariff could be welfare‐improving.

Date: 2018
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https://doi.org/10.1111/sjpe.12169

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Persistent link: https://EconPapers.repec.org/RePEc:bla:scotjp:v:65:y:2018:i:4:p:414-436

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