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Growing through trade in intermediate goods: the role of foreign growth and domestic tariffs
Author(s) -
ÁlvarezAlbelo Carmen D.,
Manresa Antonio,
PigemVigo Mònica
Publication year - 2018
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12169
Subject(s) - economics , tariff , openness to experience , international economics , welfare , comparative advantage , international trade , endogenous growth theory , monetary economics , market economy , human capital , psychology , social psychology
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.