Trade Dynamics and Endogenous Growth: An Overlapping-Generations Analysis

Abstract

This paper examines the dynamic implications of international trade in a two-sector overlapping-generations economy with endogenous growth. It analyzes the global dynamics of this model for both a closed economy and a two-country world economy. It shows how international trade can cause the world economy to sort itself out into groups of fast and slow-growing economies and can also cause one country to catch up and overtake another's growth rate. It, thus, provides theoretical support for empirical papers that find that the world distribution of income is diverging.