Knowledge, Growth and Patterns of Trade

Wei-Bin Zhang

The Annals of Regional Science, 1994, vol. 28, issue 3, 285-303

Abstract: The purpose of this study is to develop a dynamic economic framework of international trade. We propose a compact framework to deal with the complexity of dynamic interactions between consumer preferences, economic structures, the endogenous accumulation of capital and knowledge, and international trade. As an illustration, we describe in an example the dynamics of a world economy with one sector and two countries. It is shown that even in this simplified case the model may exhibit either a unique equilibrium or multiple equilibria and each equilibrium may be either stable or unstable, depending on the characteristics of the knowledge creation and utilization in the two countries. It is shown that free trade may either benefit or harm the world economy in the long term. Our framework is compared with the traditional literature on trade theory and we point out a few possible directions for further development.

Date: 1994
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