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Trade and economic growth: Does the sophistication of traded goods matter?

Author

Listed:
  • P. Niluka S. P. Ekanayake

    (University of Western Australia)

  • Jakob B. Madsen

    (University of Western Australia)

  • Tushar Bharati

    (University of Western Australia)

Abstract

Since the appearance of the seminal paper of Frankel and Romer (Am Econ Rev 89(3): 379–399, 1999), ‘Does trade cause growth?’, the impact of aggregate trade openness on income has been controversial. This research shows that the type of product that is traded has first-order effects, while overall trade intensity has second-order effects on per capita income because of (i) the hierarchical structure of learning-by-doing in products with different levels of sophistication of the production processes; and (ii) the fertility and education effects of trade specialization following the quantity–quality tradeoff framework of Galor and Mountford (Am Econ Rev 96(2): 299–303, 2006). Using data on trade disaggregated by the level of technological sophistication of the production process for 223 countries over the period 1962–2019, we find that (1) the effects of foreign trade on income differ widely across technology categories; (2) high-tech trade has permanent growth effects; and (3) a significant fraction of the impact of trade on income is mediated through education and fertility.

Suggested Citation

  • P. Niluka S. P. Ekanayake & Jakob B. Madsen & Tushar Bharati, 2023. "Trade and economic growth: Does the sophistication of traded goods matter?," Journal of Economic Growth, Springer, vol. 28(4), pages 481-524, December.
    • Handle: RePEc:kap:jecgro:v:28:y:2023:i:4:d:10.1007_s10887-023-09224-w
    DOI: 10.1007/s10887-023-09224-w
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    More about this item

    Keywords

    Trade; Economic growth; Technology; Learning-by-doing; Quantity–quality tradeoff;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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