Economic Growth with Trade in Factors of Production

International Economic Review, Forthcoming

35 Pages Posted: 25 Feb 2013

See all articles by Karine Yenokyan

Karine Yenokyan

Nazarbayev University

John J. Seater

Economics Dept., Boston College

Maryam Arabshahi


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Date Written: December 1, 2012


We study the world trading equilibrium in a Ricardian model where factors of production are themselves produced and tradable rather than endowed and non-tradable, corresponding to the three-quarters of international trade that is in intermediate and capital goods. We show that trade affects economic growth purely through comparative advantage, even in the absence of technology transfer, research and development, and international investment, and also in the absence of aggregate scale effects. Trade may raise a country's growth rate or leave it unchanged. When a world balanced growth rate exists, trade always raises the growth rate of both trading partners. Otherwise, either one partner's growth rate is increased and the other is unaffected or neither partner's growth rate is affected, depending on the patterns of comparative and absolute advantage. Trade's effect on a country's growth rate depends on the nature of the imported good and not the exported good, a result contrary to the direction of many countries' export policies. Trade in factors of production effectively transfers technology by producing an equilibrium identical to that which would obtain if technology had been transferred between trading partners even though no such transfer actually occurs, which suggests that existing empirical evidence on the relation between trade and technology transfer may not be evidence that trade facilitates actual technology transfer. We show the conditions under which factor price equalization, the Stolper-Samuelson theorem, and the Rybczynski theorem hold. We perform a numerical analysis of the transition dynamics, which appear to be saddle-point stable but may be monotonic or oscillatory in converging to the balanced growth path.

Keywords: trade, growth, comparative advantage, world income distribution, effective technology transfer

JEL Classification: O4, F15

Suggested Citation

Yenokyan, Karine and Seater, John J. and Arabshahi, Maryam, Economic Growth with Trade in Factors of Production (December 1, 2012). International Economic Review, Forthcoming, Available at SSRN:

Karine Yenokyan

Nazarbayev University ( email )

53 Kabanbay Batyra Avenue
Astana, 010000

John J. Seater (Contact Author)

Economics Dept., Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Maryam Arabshahi

Independent ( email )

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