Trade-Induced Investment-Led Growth
Universite de Geneve
Richard E. Baldwin
University of Geneva - Graduate Institute of International Studies (HEI); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
CEPR Discussion Paper Series No. 1420
This paper presents five theoretical openness-and-growth links that can account for trade-induced investment-led growth. The links are all demonstrated with neoclassical growth models developed in the context of trade models that allow for imperfect competition and scale economies. This sort of old-growth-theory-in-a-new-trade model has not been thoroughly explored in the literature since the profession skipped from old-growth-old-trade models straight to new- growth-new-trade models. Nonetheless, such models are necessary to explain several key aspects of the econometric evidence on trade and growth. For example, cross-country data suggests that openness influences growth only via its effect on investment and suggests that openness promotes investment in all countries, whatever the capital-intensiveness of their exports (contrary to predictions of the old-growth-old-trade models).
JEL Classification: F12, F43working papers series
Date posted: October 4, 1996
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