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Trade Liberalization, Growth, and Productivity

Author

Listed:
  • Timothy J. Kehoe

    (University of Minnesota)

  • Mark J. Gibson

    (Washington State University)

  • Kim J. Ruhl

    (Stern School, New York University)

  • Claustre Bajna

    (Ryerson University)

Abstract

We investigate the theoretical relationship between trade policy and growth. We use simple versions of some of the most common international trade models to investigate a number of specific mechanisms by which trade liberalization is thought to enhance growth or productivity: improvements in the terms of trade, increases in product variety, reallocation toward more productive firms, and an increased incentive to accumulate capital. In each model, trade liberalization improves social welfare. This is to be expected, but our results on real GDP may come as a surprise. In the static models, there is no general connection between trade liberalization and increases in real GDP per capita â the relationship may even be negative. In a dynamic model with capital accumulation, some countries will have slower rates of growth under free trade than under autarky. Opening to trade improves welfare, but does not necessarily increase real GDP per capita or speed up growth. If openness does in fact lead to large increases in real GDP, these increases do not come from the standard mechanisms of international trade.

Suggested Citation

  • Timothy J. Kehoe & Mark J. Gibson & Kim J. Ruhl & Claustre Bajna, 2011. "Trade Liberalization, Growth, and Productivity," 2011 Meeting Papers 794, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:794
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    Cited by:

    1. Gibson, Mark & Graciano, Tim, 2011. "Trade Models with Heterogeneous Firms: What About Importing?," MPRA Paper 33048, University Library of Munich, Germany.
    2. International Monetary Fund, 2017. "Brazil: Selected Issues," IMF Staff Country Reports 2017/216, International Monetary Fund.
    3. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2012. "Productivity and the welfare of nations," Economics Working Papers 1312, Department of Economics and Business, Universitat Pompeu Fabra.
    4. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2022. "Productivity and the Welfare of Nations," Journal of the European Economic Association, European Economic Association, vol. 20(4), pages 1647-1682.
    5. Crespo, Aranzazu, 2012. "Trade, Innovation and Productivity: A Quantitative Analysis of Europe," MPRA Paper 57162, University Library of Munich, Germany.
    6. Saeed Solaymani & Mehdi Shokrinia, 2016. "Economic and environmental effects of trade liberalization in Malaysia," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 18(1), pages 101-120, October.
    7. Rubini Loris, 2020. "International Trade and Productivity after Apartheid," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(2), pages 1-32, June.
    8. Rudakovski, Yan (Рудаковский, Ян), 2019. "Estimation of Belarus Trade Policy Liberalization Process Following Customs Union Creation [Оценка Либерализации Нетарифных Барьеров Республики Беларусь После Создания Тc]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 3, pages 110-131, June.
    9. Andrew Atkeson & Ariel Tomás Burstein, 2010. "Innovation, Firm Dynamics, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 433-484, June.
    10. Ariel Burstein & Javier Cravino, 2015. "Measured Aggregate Gains from International Trade," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 181-218, April.
    11. Douglas A. Irwin, 2019. "Does Trade Reform Promote Economic Growth? A Review of Recent Evidence," Working Paper Series WP19-9, Peterson Institute for International Economics.
    12. Guido Sandleris & Mark L. J. Wright, 2014. "The Costs of Financial Crises: Resource Misallocation, Productivity, and Welfare in the 2001 Argentine Crisis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(1), pages 87-127, January.
    13. Susanto Basu & Luigi Pascali & Fabio Schiantarelli & Luis Serven, 2012. "Productivity and the Welfare of Nations," Working Papers 621, Barcelona Graduate School of Economics.
    14. Gibson, Mark J. & Graciano, Tim A., 2012. "Trade Engagement and Producer Performance," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124833, Agricultural and Applied Economics Association.
    15. Stracca, Livio, 2013. "The rise of China and India: blessing or curse for the advanced countries?," Working Paper Series 1620, European Central Bank.

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