Working Paper: NBER ID: w19667
Authors: Fernando E. Alvarez; Francisco J. Buera; Robert E. Lucas Jr.
Abstract: We provide a theoretical description of a process that is capable of generating growth and income convergence among economies, and where freer trade has persistent, positive effects on productivity, beyond the standard efficiency gains due to reallocation effects. We add to a standard Ricardian model a theory of endogenous growth where the engine of growth is the flow of ideas. Ideas are assumed to diffuse by random meetings where people get new ideas by learning from the people they do business with or compete with. Trade then has a selection effect of putting domestic producers in contact with the most efficient foreign and domestic producers. We analyze the way that trade in goods, and impediments to it, affect this diffusion. We find that exclusion of a country from trade reduces productivity growth, with large long-term effects. Smaller trade costs have moderate effects on productivity.
Keywords: trade; technology diffusion; productivity growth; economic growth
JEL Codes: F10; F19; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade (F19) | technology diffusion (O33) |
| technology diffusion (O33) | productivity growth (O49) |
| trade participation (F10) | productivity growth (O49) |
| exclusion from trade (F13) | reduced productivity growth (O49) |
| trade costs (F19) | productivity growth (O49) |
| trade costs (F19) | technology diffusion (O33) |
| trade (F19) | productivity growth (O49) |