Trade policy in a growth model with technology gap dynamics and simulations for South Africa

Jorn Rattso and Hildegunn Stokke

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 7, 1042-1056

Abstract: We extend an open economy Ramsey model to include the technology gap to the world technology frontier. The setting is a middle income country with productivity growth driven by technology adoption and foreign capital goods stimulating spillover and catching up. The interaction of technology adoption and capital accumulation generates prolonged transition growth and strengthens the growth effect of increased openness. Model simulations reproduce the changing openness in South Africa 1960–2005. International sanctions and protectionism are represented by a calibrated tariff equivalent, and the counterfactual elimination of the tariff equivalent shows large potential for GDP growth. According to our preferred parameterization increased trade share by 10% points raises GDP level over time by about 12%. Separating the effects of openness between investment and productivity we find that almost 60% of the increase in GDP is due to increased productivity, partly because of interaction with higher investment.

Keywords: Growth model; Technology gap; World technology frontier; Trade policy; South Africa (search for similar items in EconPapers)
JEL-codes: F14 F43 O33 O41 O55 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:36:y:2012:i:7:p:1042-1056

DOI: 10.1016/j.jedc.2012.02.005

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