An Eaton–Kortum model of trade and growth

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Abstract

We combine a multi-country, continuum-good Ricardian model of Eaton and Kortum (2002) with a multi-country AK model of Acemoglu and Ventura (2002) to examine how trade liberalization affects countries' growth rates and extensive margins of trade over time. Focusing on the three-country case, we obtain three main results. First, a permanent fall in any trade cost raises the balanced growth rate. Second, trade liberalization increases the liberalizing countries' long-run fractions of exported varieties to all destinations. Third, the long-run effects of trade liberalization are different from its short-run effects, which can reverse the welfare implications of the static Eaton–Kortum model.

Original languageEnglish
Pages (from-to)456-480
Number of pages25
JournalCanadian Journal of Economics
Volume50
Issue number2
DOIs
Publication statusPublished - 2017 May 1

ASJC Scopus subject areas

  • Economics and Econometrics

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