International Trade with Endogenous Technological Change

47 Pages Posted: 8 Jun 2004

See all articles by Luis A. Rivera-Batiz

Luis A. Rivera-Batiz

Universidad de Puerto Rico - Graduate School of Business Administration

Paul M. Romer

National Bureau of Economic Research (NBER)

Date Written: January 1991

Abstract

To explain why trade restrictions sometimes speed up worldwide growth and sometimes slow it down, we exploit an analogy with the theory of consumer behavior. substitution effects make demand curves slope down, but income effects can increase or decrease the slope, and can sometimes overwhelm the substitution effect. We decompose changes in the worldwide growth rate into two effects (integration and redundancy) that unambiguously slow down growth, and a third effect (allocation) that can either speed it up or slow it down. We study two types of trade restrictions to illustrate the use of this decomposition. The first is across the board restrictions on traded goods in an otherwise perfect market. The second is selective protection of knowledge-intensive goods in a world with imperfect intellectual property rights. In both examples, we show that for trade between similar regions such as Europe and North America, the first two effects dominate; starting from free trade, restrictions unambiguously reduce worldwide growth.

Suggested Citation

Rivera-Batiz, Luis A. and Romer, Paul M., International Trade with Endogenous Technological Change (January 1991). NBER Working Paper No. w3594. Available at SSRN: https://ssrn.com/abstract=226823

Luis A. Rivera-Batiz (Contact Author)

Universidad de Puerto Rico - Graduate School of Business Administration ( email )

Ponce De Leon Avenue
00931-3300
Puerto Rico

Paul M. Romer

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
78
rank
302,924
Abstract Views
1,085
PlumX Metrics