Hetergeneous Sectors, Trade, and Growth

23 Pages Posted: 25 Apr 2009

See all articles by Danyang Xie

Danyang Xie

Hong Kong University of Science & Technology (HKUST) - Department of Economics

Pengfei Wang

HKUST, Department of Economics; Hong Kong University of Science & Technology (HKUST) - Department of Economics

Date Written: April, 24 2009

Abstract

This paper introduces sectorial heterogeneity in TFPs in a growth model driven by an exogenous process of labor specialization to generate new insights on trade and economic growth. Despite the exogeneity of labor specialization, the overall economic growth rate in this model is endogenously determined and depends in a closed economy on the distribution of labor intensity across sectors. Our model could thus be labeled as a semi-endogenous growth model in the sense of Jones (1995). When the model is extended to allow for international trade, we find that the overall growth rate is unambiguously higher as the number of trading partners increases. There are two effects working in the same direction contributing to this result: the resource re-allocation effect and the total product-variety effect. On the other hand, the growth effect of the reduction in trade-related fixed cost is non-monotonic because the two effects work in opposite directions.

Keywords: Heterogeneous Sectors, International Trade, Growth

Suggested Citation

Xie, Danyang and Wang, Pengfei, Hetergeneous Sectors, Trade, and Growth (April, 24 2009). Available at SSRN: https://ssrn.com/abstract=1394325 or http://dx.doi.org/10.2139/ssrn.1394325

Danyang Xie (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China
852-2358-7603 (Phone)
852-2358-2084 (Fax)

Pengfei Wang

HKUST, Department of Economics ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China

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