Technological Leadership and Sustainable Growth in a Bilateral Trade Model
International Game Theory Review
Posted: 24 Apr 2010 Last revised: 25 Mar 2015
Date Written: March 1, 2008
This paper develops a trade model for a technologically leading country and a developing country that exploits a renewable natural resource. Technology diffuses from the technological leader to the developing country through foreign direct investment (FDI). Alternatively, innovative activities can also be carried out in the developing economy. We prove the existence and uniqueness of an equilibrium path along which both countries grow at the same rate, maintaining the natural-resource stock at a constant level. The saddle-point property for this equilibrium is proved and a sensitivity analysis is carried out. The steady-state growth rate and consumption under both scenarios are compared and the effect of resource abundance analyzed.
Keywords: Trade, renewable natural resources, technological progress, foreign direct investment, endogenous growth, sustainability
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