Trade, Growth, and Technology Equalization

Abstract

Trade is shown to affect economic growth purely through comparative advantage; unlike previous literature, this result does not depend on the presence of scale effects, technology transfer, research and development, or even international investment. The resulting growth rates are those that would emerge from technology transfer, even though no technology transfer actually occurs, leading to a technology equalization theorem. Trade never reduces growth. 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 unaffected or neither partner's growth rate is affected, depending on the pattern of both comparative and absolute advantage. Trade therefore does not necessarily guarantee a stable world income distribution. Trade's effect on the growth rate of a country's output depends on the type of goods imported but not on the type exported.

Keywords: Trade, growth, technology equalization, comparative advantage, absolute advantage, world income distribution

JEL Classification: O4, F15