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Growing through trade in intermediate goods: the role of foreign growth and domestic tariffs

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We show that pure Ricardian trade can account for the empirical evidence that domestic growth is more affected by foreign growth than by trade openness. To do this, we develop a two‐country model involving a backward economy that exchanges intermediate goods with a faster growing country. We obtain three main results regarding growth and welfare of the backward economy: (i) the growth‐enhancing comparative advantage is facilitated by faster foreign growth; (ii) the growth rate may be negatively affected or unaffected by a domestic tariff, while it is always positively impacted by foreign growth; and (iii) a domestic tariff could be welfare‐improving.

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Scottish Journal of Political Economy, 2018, vol. 65, num. 4, p. 414-436

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Articles publicats en revistes (Economia)

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Growing through trade in intermediate goods: the role of foreign growth and domestic tariffs