Helping thy neighbour: productivity, welfare and international trade

Niek Nahuis () and Ben Geurts
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Ben Geurts: Ministry of Finance, The Hague, The Netherlands

International Trade from University Library of Munich, Germany

Abstract: We describe the relation between welfare growth and productivity growth. We argue that differences in productivity and productivity growth between sectors or countries are irrelevant from a policy perspective. Specialisation is based on the comparative advantages of countries. Since, by nature, some sectors witness higher productivity growth than others, so do countries. Although, at the global level, productivity growth and welfare growth are two sides of the same coin, at the national level they are not. The welfare effects of productivity growth in part leak away to consumers in other countries because technological progress is translated into a decline of export prices relative to import prices. Or stated differently, importing countries benefit from the lower prices due to technological innovations in exporting countries. These terms of trade effects of productivity growth on welfare do not only exist in theory. Empirically, we find significant and large terms of trade effects. Our overall conclusion is that once this trade perspective is taken into account, productivity is less attractive as a primary policy goal for governments. The primary task for governments is rather to create an environment in which private agents can explore the comparative advantages they have.

Keywords: welfare; comparative advantages; terms of trade; productivity; economic policy (search for similar items in EconPapers)
JEL-codes: D60 F43 O38 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2004-04-09
New Economics Papers: this item is included in nep-mic
Note: Type of Document - pdf; pages: 14
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpit:0404008

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