A Ricardian model of trade and growth with endogenous trade status

We formulate a two-country, continuum-good Ricardian model of trade and endogenous growth with endogenous trade status. After establishing the existence, uniqueness, and global stability of a balanced growth path, we show that, compared with the old balanced growth path, a permanent fall in the trad...

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Bibliographic Details
Published in:Journal of international economics 2012-05, Vol.87 (1), p.80-88
Main Author: Naito, Takumi
Format: Article
Language:English
Subjects:
Balanced growth
Comparative advantage
Comparative analysis
Economic growth
Economic models
Endogenous growth
Endogenous trade status
Exports
Growth rate
Imports
International trade
Ricardian model
Ricardo, David
Studies
Terms of trade
Trade liberalization
Trade models
Unilateral trade liberalization
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Summary:We formulate a two-country, continuum-good Ricardian model of trade and endogenous growth with endogenous trade status. After establishing the existence, uniqueness, and global stability of a balanced growth path, we show that, compared with the old balanced growth path, a permanent fall in the trade cost in any one country: (i) raises the growth rates of capital in all countries for all periods; (ii) increases both the range of the imported varieties and that of the exported varieties in all countries for all periods; and (iii) raises welfare in all countries. Our theoretical predictions are qualitatively consistent with the empirical evidence. ► A two-country, continuum-good Ricardian model of trade and endogenous growth. ► A permanent fall in the trade cost in any one country has the following effects. ► It raises the growth rates of capital in all countries for all periods. ► It increases both imported and exported varieties in all countries for all periods. ► It raises welfare in all countries.
ISSN:0022-1996
1873-0353
DOI:10.1016/j.jinteco.2011.11.007