A Factor Endowment Theory of Endogenous Growth and International Trade

Yunfang Hu, Murray Kemp and Koji Shimomura

No 150, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: The Frankel-Romer-Lucas theory of endogenous growth rests on the assumption of knowledge-based externalities and price-taking representative households. It is argued that, in a context of long-run growth, these assumptions are mutually incompatible (that representative households will co-operate to internalize the externalities) and that therefore the relevance of the theory must be questioned. In the present paper we offer a model of endogenous growth, based on representative households but recognizing that, in a context of long-run growth, the households must cooperate. Our economy consists of many countries, populated by households which are identical within countries but not necessarily across countries. In each country, government expenditure on a public intermediate good plays a crucial role in the realization of persistent growth. It is shown that the long-run pattern of international trade is determined in a Heckscher-Ohlin manner.

Pages: 27 pages
Date: 2004-03
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Journal Article: A Factor Endowment Theory of Endogenous Growth and International Trade (2005)
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