Learning by Doing and the Dynamic Effects of International Trade

Abstract

Using an endogenous growth model in which learning by doing, although bounded in each good, exhibits spillovers across goods, this paper investigates the dynamic effects of international trade. Examining an LDC and a DC, the latter distinguished by a higher initial level of knowledge, under autarky and free trade, I find that under free trade the LDC (DC) experiences rates of technical progress and GOP growth less than or equal (greater than or equal) to those enjoyed under autarky. Unless the LDC's population is several orders of magnitude greater than that of the DC and the initial technical gap between the two economies is not large, the LDC will be unable to catch up with its trading partner. Hence, in terms of technical progress and growth, the LDC experiences dynamic losses from trade, whilst the DC experiences dynamic gains. However, since technical progress abroad can improve welfare at home, LDC consumers may enjoyhigher intertemporal utility along the free trade path. In the case of DC consumers, as long as their economy is not overtaken by the LDC they will enjoy both more rapid technical progress and the traditional static gains from trade, and hence experience an unambiguous improvement in intertemporal welfare.

Specialization on a technologically stagnant sector need not be bad for growth

“…w t e ¡¹ r(t)t dt: (16) This is just the usual requirement, that the present value of consumption equals wealth, de…ned as the sum of initial assets, q 0 k 0 plus the present value of wage income.…”

“…Lucas (1988), Stokey (1991) and Young (1991) have started a strand of research which argues that international trade may cause persistent cross-country di¤erences in per capita real income growth. This result is derived in a framework where only consumption goods are traded internationally, there is no physical capital, and countries have identical preferences.…”

Measuring Total Factor Productivity: Accounting for cross country differences in income per capita // Мјерење укупне факторске продуктивности: обрачун међудржавних разлика у БДП-у по раднику

“…Lucas, 1988;Jones and Manuelli, 1990;Rebelo, 1991;Stokey, 1991). Another strand perpetuates growth through the accumulation of knowledge, either through learning by doing (Romer, 1986;Stokey, 1988;Young, 1991) or through R&D (Romer, 1990: Grossman andHelpman, 1991;Aghion and Howitt, 1992). Since these models oft en have diff erent positive and normative predictions, it is important to distinguish between them empirically.…”

Innovation and Export Competitiveness: Evidence from Georgia Firms

“…Such endogenous growth models (Romer, 1990); (Grossman and Helpman, 1991); (Young, 1991); (Hobday, 1995) cover the need for firms to innovate to meet stronger competition/different standards in foreign markets, they allow for a 'learning-by-exporting' effect and they allow for economies of scale and thus firms to cover the large fixed costs of undertaking R&D (and innovating).…”