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Terms of trade effects on endogenous growth rates in LDCs

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  • Ben Peletier

Abstract

This paper presents a model in which long-term GDP growth rates of LDCs are dependent upon world price levels. The model combines an endogenous growth framework a la Romer (1986, Journal of Political Economy, 94, pp. 1002-1037) with traditional Heckscher-Ohlin-Samuelson international trade, while assuming investment in capital to be financed solely by domestic savings. This relatively strong assumption is justified by the empirical observation that for most LDCs foreign investment constitutes only a very small part of gross capital formation. We find that an increase in the price of capital-intensive goods will raise the long-term growth rate. In other words, in this model protection of the capital-intensive goods sector will cause higher economic growth.

Suggested Citation

  • Ben Peletier, 1998. "Terms of trade effects on endogenous growth rates in LDCs," Oxford Development Studies, Taylor & Francis Journals, vol. 26(3), pages 351-373.
    • Handle: RePEc:taf:oxdevs:v:26:y:1998:i:3:p:351-373
    DOI: 10.1080/13600819808424161
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    Cited by:

    1. Takumi Naito, 2013. "Aid for trade, infrastructure, and growth," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(6), pages 886-909, December.
    2. Nishat Fatima, 2010. "Analysing the Terms of Trade Effect for Pakistan," Trade Working Papers 22828, East Asian Bureau of Economic Research.
    3. Takumi Naito, 2010. "Aid, non‐traded goods, and growth," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(2), pages 423-439, May.

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