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Savings, Volume of Trade, and Growth
Author(s) -
Osang Thomas,
Pereira Alfredo
Publication year - 1997
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00059
Subject(s) - economics , elasticity of substitution , endogenous growth theory , consumption (sociology) , general equilibrium theory , terms of trade , growth model , international economics , international trade , production (economics) , microeconomics , market economy , social science , sociology , human capital
This paper develops a two‐country dynamic general equilibrium model with endogenous growth to analyze the effects of international trade on steady‐stage growth. The two countries differ both in preferences and in technologies. It is shown first that both countries cannot simultaneously experience increases in consumption growth from trade. It is then shown that trade can increase output growth for both countries if the attitude towards saving matches the change in the terms of trade in each country. A country facing a decline (rise) in its output price grows faster if its intertemporal elasticity of substitution is sufficiently low (high).