Hetergeneous Sectors, Trade, and Growth
23 Pages Posted: 25 Apr 2009
Date Written: April, 24 2009
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
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