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Trade, Sectorial Reallocation, and Growth

Pengfei Wang () and Danyang Xie

Annals of Economics and Finance, 2018, vol. 19, issue 1, 49-74

Abstract: This paper introduces sectorial heterogeneity in TFPs in a growth model to generate new insights on trade, sectorial reallocation, and economic growth. The rate of overall economic growth in this model is a simple average of sectorial growth in a closed economy, but will depend on trade parameters in an open economy as openness to trade shifts resources toward fast-growing sectors. We find that the overall growth rate is unambiguously higher as the number of trading partners increases. These conclusions survive even after trade cost is introduced. Nevertheless, trade share and growth rate may not move in the same direction as trade liberalization is pursued or as the number of trading partners is increased. This finding may explain why the existing empirical evidence concerning this relationship between growth and trade share remains inconclusive.

Keywords: heterogeneous sectors; international trade; growth (search for similar items in EconPapers)
JEL-codes: F12 R13 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Trade, Sectorial Reallocation, and Growth (2014) Downloads
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