Free Trade, Growth, and Convergence

Abstract

Can trade liberalization have a permanent affect on output levels, and more importantly, does it have an impact on steady-state growth rates? The model emphasizes the role that knowledge spillovers emanating from heightened trade can have on income convergence and growth rates during transition and over the long run. Among the results of the model, unilateral liberalization by one country reduces the income gap between the liberalizing country and other, wealthier, countries. From the long-run growth perspective, unilateral (and multilateral) liberalization generates a positive impact on the steady-state growth of all the trading countries.

JEL Classification: F14; F14; O47