The international trade as the sole engine of growth for an economy

Identifier:  PC:2374

Handle: https://hdl.handle.net/20.500.11797/PC2374

Authors:  Álvarez Albelo, Carmen; Manresa, Antonio; Pigem-Vigo, Mònica

Abstract:
Can international trade act as the sole engine of growth for an economy? If yes, what are the mechanisms through which trade operates in transmitting permanent growth? This paper answers these questions with two simple two-country models, in which only one country enjoys sustained growth in autarky. The models differ in the assumptions on technical change, which is either labour- or capital-augmenting. In both cases, the stagnant economy imports growth by trading. In the first model, growth is transmitted because of permanent increases in the trade volume. In the alternative framework, the stagnant economy imports sustained growth because its terms of trade permanently improve.