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Can sustained growth be attained through trading exhaustible resources for foreign research?

Francisco Cabo, Guiomar Martin-Herran and María Pilar Martín-Herrán
Authors registered in the RePEc Author Service: María Pilar Martínez-García ()

The Journal of International Trade & Economic Development, 2014, vol. 23, issue 2, 267-298

Abstract: We analyze the existence and the stability of a sustained balanced growth equilibrium (SBE) in a model of two non-homogeneous trading economies. A technological leader country which sells patents of new intermediate products in exchange for an exhaustible resource extracted by a technological follower trade partner. Considering a growth-essential resource, the 'knife-edge' assumption of exactly constant returns to scale (CRS) to manmade inputs can be alleviated, and the scale effects associated with R&D-based growth models overcome. A fully endogenous SBE is proven to exist, although its stability turns out to be a 'knife-edge' possibility. The long-run equilibrium is saddle-path stable assuming CRS in manmade inputs. Conversely, considering increasing returns to scale together with a completely specialized two-country trade, the equilibrium could be reached only if the two economies initially guard a particular relation, described by a particular subset of the state space.

Date: 2014
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DOI: 10.1080/09638199.2012.742131

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